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On 08/02/94
[L-S document 498217, 59 FR 39258, 3917 lines]

  ENVIRONMENTAL PROTECTION AGENCY

  40 CFR Part 80

  [AMS-FRL-5017-1]

  Regulation of Fuels and Fuel Additives: Renewable Oxygenate Requirement for
  Reformulated Gasoline

  AGENCY: Environmental Protection Agency.

  ACTION: Final rule.
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  SUMMARY: EPA's regulations for reformulated gasoline (RFG) based on the Clean
  Air Act, as amended, requires that gasoline sold in certain areas be
  reformulated to achieve the greatest possible reductions in vehicle emissions
  of toxic and ozone-forming compounds. Among other things, EPA's regulations
  establish standards requiring a specified oxygen content in reformulated
  gasoline. This rule promulgates additional regulations which require that 30
  percent of the oxygen required by the Clean Air Act to be used in
  reformulated gasoline be derived from renewable feedstocks. This renewable
  oxygenate requirement will assure that implementation of the RFG program is
  consistent with the longstanding federal policy of promoting renewable fuels.
  The renewable oxygenate requirement is expected to have a positive energy
  impact by reducing the amount of fossil energy needed to meet the
  requirements of the reformulated gasoline program. In addition, this program
  is expected to stimulate the development of new technologies which would lead
  to reduced emissions of greenhouse gases and further reductions in fossil
  energy consumption.

  EFFECTIVE DATE: This rule is effective on September 1, 1994, except Secs.
  80.83 (g) and (h) are not effective until OMB has approved the Information
  Collection Requirements contained in them. EPA will publish a document in the
  Federal Register following OMB approval of the information collection
  requirements.

  ADDRESSES: Materials relevant to this final rule (FRM) are contained in
  Public Docket A-93-49, located at Room M-1500, Waterside Mall (ground floor),
  U.S. Environmental Protection Agency, 401 M Street SW., Washington, DC 20460.
  Information relevant to this rulemaking may also be found in dockets A-91-02
  and A-92-12, which are hereby incorporated into docket A-93-49 for the
  purposes of this rulemaking. The docket may be inspected from 8 a.m. until 4
  p.m. Monday through Friday. A reasonable fee may be charged by EPA for
  copying docket materials.

  FOR FURTHER INFORMATION CONTACT:
  Paul Machiele, Regulation Development and Support Division, U.S. EPA (RDSD-
    12), 2565 Plymouth Road, Ann Arbor, MI 48105, Telephone: (313) 668-4264.
  Joann Jackson Stephens, Regulation Development and Support Division, U.S. EPA
    (RDSD-12), 2565 Plymouth Road, Ann Arbor, MI 48105, Telephone: (313) 668-
    4276.

    To request copies of this rule contact: Delores Frank, Regulation
  Development and Support Division, U.S. EPA (RDSD-12), 2565 Plymouth Road, Ann
  Arbor, MI 48105, Telephone: (313) 668-4295.

  SUPPLEMENTARY INFORMATION: A copy of this action is available on the OAQPS
  Technology Transfer Network Bulletin Board System (TTNBBS). The TTNBBS can be
  accessed with a dial-in phone line and a high-speed modem (PHNZ 919-541-5742).
  The parity of your modem should be set to none, the data bits to 8, and the
  stop bits to 1. Either a 1200, 2400, 9600, or 14400 baud modem should be
  used. When first signing on, the user will be required to answer some basic
  informational questions for registration purposes. After completing the
  registration process, proceed through the following series of menus:
    (M) OMS
    (K) Rulemaking and Reporting
    (3) Fuels
    (9) Reformulated gasoline.

  A list of ZIP files will be shown, all of which are related to the
  reformulated gasoline rulemaking process. Today's action, as well as the
  Regulatory Impact Analysis & Response to Comments Document, will be in the
  form of ZIP files and can be identified by the following titles: ROXY-
  PRE.ZIP, ROXY-REG.ZIP, and ROXY-RIA.ZIP. To download these files, type the
  instructions below and transfer according to the appropriate software on your
  computer:

  <D</=ownload, <P</=rotocol, <E</=xamine, <N</=ew, <L</=ist, or <H</=elp
  Selection or <CR</= to exit: D filename.zip

    You will be given a list of transfer protocols from which you must choose
  one that matches with the terminal software on your own computer. The
  software should then be opened and directed to receive the file using the
  same protocol. Programs and instructions for de-archiving compressed files
  can be found via <S</=ystems Utilities from the top menu, under
  <A</=rchivers/de-archivers.
    Please note that due to differences between the software used to develop
  the document and the software into which the document may be downloaded,
  changes in format, page length, etc. may occur.

  I. Background

  A. Clean Air Act Requirements

    The primary purpose of the federal reformulated gasoline program is to
  improve air quality by reducing motor vehicle emissions of toxic and
  tropospheric ozone-forming compounds, as prescribed by section 211(k) of the
  Clean Air Act as amended (CAA or the Act). The Act mandates certain
  requirements for the reformulated gasoline program. Section 211(k)(2)
  requires a minimum content of 2.0 weight percent oxygen and maximum content
  of 1.0 volume percent benzene, and section 211(k)(3) sets minimum performance
  standards for emissions of ozone forming volatile organic compounds (VOC),
  oxides of nitrogen (NOX), and air toxics. To meet the oxygen content
  requirement, oxygenates must be added to gasoline. The two most common
  oxygenates used today are methyl tertiary-butyl ether (MTBE) and ethanol.
  MTBE is an ether derived primarily from isobutylene, a product typically
  produced from natural gas or petroleum, and methanol, which in turn is also
  produced primarily from natural gas. Ethanol is an alcohol produced primarily
  from corn, though it can be produced from other feedstocks as well. A third
  oxygenate, ethyl tertiary butyl ether (ETBE), is an ether derived from
  ethanol and isobutylene. A number of other oxygenates such as tertiary amyl
  methyl ether (TAME) and tertiary amly ethyl ether (TAEE) are currently under
  consideration by the industry as well. Their ultimate use will depend on
  their relative economics compared to those oxygenates currently in use.
    Section 211(k)(1) of the Act directs EPA to promulgate regulations
  establishing requirements for reformulated gasoline. It also provides that
  such regulations require the greatest reductions in VOC and toxics emissions,
  taking into consideration the cost of achieving such emission reductions,
  non-air-quality and other air-quality related health and environmental
  impacts and energy requirements.

  B. Historical Background

    There is considerable history behind EPA's decision to promulgate a
  renewable oxygenate requirement. Congress and both the past and the present
  Administrations have long supported the development and use of renewable
  fuels for a variety of reasons, including a desire to reduce oil imports,
  save fossil energy, reduce global warming emissions, and develop domestic
  sources of fuel. This support has taken the form of a number of legislative
  and policy initiatives. For example, since 1978 renewable fuels have been
  eligible for an excise tax credit which today is set at 54c/gallon. The
  Departments of Energy and Agriculture have invested hundreds of millions of
  dollars in research and development related to the production and
  commercialization of renewable fuels. As a result of these programs, the
  ethanol industry developed into a significant industry which by 1990
  represented roughly one percent of the nation's gasoline consumption.
    The 1990 amendments to the Clean Air Act provided ethanol blends with a
  limited waiver from vapor pressure limits placed on the volatility of
  conventional gasolines, in order to maintain the ease with which ethanol
  could be blended with gasoline. Furthermore, the 1990 amendments to the Clean
  Air Act included several provisions which many expected to further stimulate
  demand for renewable oxygenates such as ethanol. These provisions included
  the wintertime oxygenated fuels program which began in 1992 and has already
  considerably increased the demand for ethanol, and the year-round
  reformulated gasoline program which is to begin in December of 1994. EPA
  promulgated final regulations for RFG on December 15, 1993 (59 FR 7716,
  February 16, 1994).
    In the process of developing the regulations for the RFG program, EPA
  entered into a regulatory negotiation with interested parties shortly after
  passage of the Clean Air Act Amendments of 1990. Included in the negotiations
  were representatives of the States, oxygenate producers, farm interests,
  environmental groups, the oil industry, the automobile industry, the driving
  public, the EPA, and the Department of Energy. (See 56 FR 31176, July 9,
  1991, for an explanation of the members of the negotiating committee and a
  discussion of the process for selecting them.) After extensive discussions,
  an Agreement in Principle was signed by all members of the advisory committee
  in August of 1991.
    The 1991 regulatory negotiation agreement formed the basis for EPA's April
  1992 Supplemental Notice of Proposed Rulemaking (SNPRM) (57 FR 13416, April
  16, 1992) for reformulated gasoline. In order to ensure compliance with the
  minimum reductions in ozone forming volatile organic compounds (VOCs)
  required by Congress for the RFG program, this proposal did not extend the
  volatility waiver for ethanol-blended conventional gasoline to RFG. In
  response, members of the ethanol industry submitted comments to EPA which
  expressed their concern that the proposed reformulated gasoline rules would
  effectively exclude ethanol from the reformulated gasoline market.
    Ethanol, when added to gasoline in the amount needed to satisfy the oxygen
  content requirement of the Act, raises the Reid vapor pressure (RVP) of the
  resulting blend by about 1 psi, making it more difficult for ethanol blends
  to meet the mass VOC performance standards than blends using other
  oxygenates. For ethanol to be used in summertime RFG, a gasoline blendstock
  with an RVP low enough to offset the increase resulting from adding ethanol
  would have to be obtained. The contention was that obtaining such blendstocks
  would be both difficult and expensive, because "sub-RVP" blendstocks would be
  more costly to refine and distribute and because blendstock production would
  be controlled by petroleum refiners. The ethanol industry representatives
  believed that the oil industry would have a tendency to rely almost
  exclusively on MTBE over ethanol because MTBE does not boost a fuel's RVP and
  is readily blended at the refinery and distributed through the existing
  gasoline infrastructure, since, unlike ethanol, it does not raise materials
  compatibility or water adsorption concerns with the existing gasoline
  distribution infrastructure. Thus, there would be little incentive to make
  the sub-RVP blendstock necessary for ethanol blending into summertime RFG.
  The ethanol industry representatives also contended that refiners would not
  want to switch oxygenates during the course of the year and would therefore
  utilize MTBE year-round, thereby eliminating any RFG market for ethanol.
    For this reason, ethanol and farm interests sought a summer volatility
  waiver for ethanol-based reformulated gasolines. Other signatories to the
  regulatory negotiation agreement, such as the oil industry, methanol and
  ether producers, states, and environmental groups, opposed such a waiver
  because it could eliminate most or all of the VOC benefits of the RFG program
  if ethanol was used in large volumes. At the request of ethanol and farm
  interests, the Agency held a public hearing to receive testimony on this and
  other issues in June of 1992 in Chicago.
    In an attempt to address the role of ethanol, the Agency subsequently
  proposed a renewable oxygenate program (ROP) (58 FR 11722, February 26, 1993)
  to provide incentives for the use of ethanol and other renewable oxygenates
  in reformulated gasoline. The objective of the ROP was to provide incentives
  for the use of renewable oxygenates in the reformulated gasoline program in
  the summer while maintaining the overall environmental benefits of the
  program. Ethanol was considered a renewable oxygenate because it is produced
  primarily from agricultural sources such as corn, which can be regenerated.
  Other oxygenates such as MTBE are produced primarily from nonrenewable
  resources, such as petroleum and/or natural gas.
    For a variety of reasons, as explained in section II of the preamble and
  section I of the Regulatory Impact Analysis (RIA) for the reformulated
  gasoline final rule, EPA decided not to promulgate the ROP. First, EPA
  received comments from virtually all constituencies affected by the
  rulemaking, including the ethanol industry, stating that the ROP as proposed
  was neither feasible nor workable. While EPA believed that a feasible program
  could be structured, EPA also acknowledged that it could represent a
  considerable burden on the industry. Second, the ROP would have reduced the
  RFG program's VOC emission control benefits because it provided an incentive
  for the use during the summer months of an oxygenate which exhibited
  commingling-related emission increases. (Combining ethanol blends and non-
  ethanol blends in consumer fuel tanks, even if both have identical low RVPs,
  results in a mixture with significantly higher fuel volatility and hence
  significantly higher VOC emissions. This effect is referred to as
  commingling.) The commingling effect, along with other unique distillation
  effects of ethanol on evaporative emissions and other provisions of the ROP
  as proposed, were estimated in the RIA for the RFG final rule to result in
  approximately a 6.0-7.5 percent increase in VOC emissions compared to an RFG
  program without such incentives. While difficult to estimate due to
  uncertainty in future ethanol and ETBE market shares and lack of sufficient
  data to reliably quantify the distillation effects, such an increase in VOC
  emissions amounts to a loss of about 40 to 50 percent of the minimum VOC
  control that is required under section 211(k)(3) for reformulated gasoline
  during the summer, even though the average RVP of the RFG produced by
  refiners remained the same. Thus, EPA's analysis indicated that the proposal
  would not maintain the environmental benefits of reformulated gasoline. A
  third concern with the ROP was that the program would have created an
  incentive for the use of renewables but in no way assured their use. Upon
  consideration of these and other factors, the Agency decided not to finalize
  the ROP. Other options considered did not resolve the concerns raised with
  the ROP as proposed. (The reader is referred to section II of the Preamble
  and section I of the RIA for the reformulated gasoline final rule for a
  description of the options and alternatives to the ROP considered.)
    Hence, the final rule for reformulated gasoline does not include provisions
  to provide incentives for the use of renewable oxygenates. This left
  substantial uncertainty regarding the magnitude of the role renewable
  oxygenates would play in the roughly 35 percent of the U.S. gasoline market
  expected to be covered by the RFG program.

  C. Renewable Oxygenate Requirement Proposal

    To address the issues discussed above, at the same time EPA issued the
  final rules for RFG, it also proposed (58 FR 68343) a year-round requirement
  that 30 percent of the mandatory oxygen content specification for
  reformulated gasoline be obtained from renewable oxygenates. To ensure that
  the ozone benefits from the reformulated gasoline program are not adversely
  affected by that requirement, EPA proposed that during the VOC control period
  (i.e., the summer months) only renewable oxygenates that do not exhibit
  volatility-related commingling effects when mixed with gasoline would receive
  renewable oxygenate credit. All approved renewable oxygenates, including
  ethanol, were expected to be acceptable during the non-summer months when
  commingling-related volatility increases have relatively little effect on VOC
  emissions and when ozone exceedances are rare. Also included in the proposal
  were provisions for averaging and credit trading in order to provide maximum
  flexibility to refiners and fuel importers in complying with the program.
    EPA presented several justifications for proposing a renewable oxygenate
  requirement for reformulated gasoline. The Agency concluded that expanding
  the use of renewable fuels produced from resources such as corn, grain, wood,
  organic waste products, and municipal solid waste could help cut dependence
  on foreign oil and reduce primary energy use by 20% or more as compared to
  nonrenewable oxygenates. The Agency also believed that renewable oxygenates
  offered potential air quality advantages (such as lower emissions of VOCs and
  greenhouse gases) as well as jobs-creation benefits. The Agency also stated
  its belief that the 30 percent requirement for renewable oxygenates was an
  appropriate level to ensure that renewables were not excluded from the
  reformulated gasoline oxygenate market while allowing the remaining 70
  percent of the market to be open to all fuels, regardless of their renewables
  content.
    The proposed renewable oxygenate requirement would be applied in
  conjunction with the reformulated gasoline program. It did not alter the
  performance standards or other provisions for the reformulated gasoline
  outlined in the final rulemaking for reformulated gasoline. In addition, the
  proposal did not mandate the use of any particular oxygenate, but rather
  ensured some minimum use of the class of oxygenates deemed renewable, defined
  in the proposal as ethanol and methanol from renewable sources, and their
  ether derivatives. This proposal was designed to supplement and not negate
  the Agreement in Principle arrived at through regulatory negotiation.
    EPA received over 12,000 comments in response to the renewable oxygenate
  proposal. The vast majority of these comments were letters supporting the
  proposal written by farmers, ethanol producers, and their supporters. Several
  hundred responses containing detailed, substantive, technical comments were
  received from representatives of the oil industry, the ethanol industry, corn
  farming and other agricultural interests, methanol producers, environmental
  groups, federal agencies, and state and local governments. Some of these
  comments supported the proposal while others opposed it. Detailed responses
  to many of the comments are provided in subsequent sections of this preamble
  and in the Regulatory Impact Analysis (RIA) in the docket.
    The remainder of this preamble is organized into the following sections:

    II. Overview of the Renewable Oxygenate Requirement
    III. Renewable Oxygenate Requirement for Reformulated Gasoline
    IV. Enforcement of the Renewable Oxygenate Requirement
    V. Federal Preemption
    VI. Environmental, Energy, and Economic Impacts
    VII. Public Participation
    VIII. Compliance with Regulatory Flexibility Act
    IX. Statutory Authority
    X. Administrative Designation and Regulatory Analysis
    XI. Compliance with the Paperwork Reduction Act

  II. Overview of the Renewable Oxygenate Requirement

    EPA is hereby promulgating a renewable oxygenate requirement for
  reformulated gasoline similar to that proposed on December 15, 1993 (58 FR
  68343, December 27, 1993). EPA believes that this action will ensure that the
  requirements for the reformulated gasoline program promulgated on December
  15, 1993 (59 FR 7716, February 16, 1994) are consistent with existing
  government programs and initiatives supporting renewable fuels. For many
  years, both Congress and the Executive Branch have promoted through various
  actions the use of renewable fuels and the development of the renewable fuels
  industry for various energy, economic, environmental, and agricultural policy
  objectives. Renewable fuels have been viewed as a key element of policies to
  enhance domestic energy security, reduce oil imports, conserve fossil energy
  resources, and reduce emissions of greenhouse gases.
    Congress, along with present and past Administrations, has supported these
  goals through a variety of mechanisms. The Departments of Energy (DOE) and
  Agriculture (USDA) have invested hundreds of millions of dollars over the
  past 20 years to research and develop renewable fuel feedstocks and
  production techniques. Congress has supported the increased use of renewable
  fuels since the late 1970's through various legistative actions. The Energy
  Security Act of 1980 established a number of federal policies to expand fuel
  ethanol production and use. The Omnibus Budget Reconciliation Act of 1987
  stated the intent of Congress to expand ethanol use. Under the Alternative
  Motor Fuels Act (AMFA) of 1988, the Alternative Fuels Council identified a
  significant role for ethanol. The National Energy Policy Act (EPACT) of 1992
  includes provisions to stimulate the use of a wide-range of alternative
  (nonpetroleum) fuels, including several renewable fuels. Congress and prior
  Administrations have also stimulated renewable fuel use through mechanisms
  such as the 1.0 psi volatility waiver in the CAAA for gasoline (other than
  reformulated gasoline) blended with ethanol (the major renewable fuel in use
  today), the oxygen content requirements of the wintertime oxygenated gasoline
  and reformulated gasoline programs, and various economic incentives such as
  tax credits since 1978 (currently equal to 54 cents per gallon of renewable
  fuel).
    These programs, combined with additional tax incentives in many states and
  continued innovation in production techniques, have helped the renewable
  fuels industry develop and grow. It has become economically attractive to add
  ethanol to conventional gasoline in many areas of the country, primarily by
  splash-blending ethanol with gasoline. This process involves mixing ethanol
  into finished gasoline at the terminal. (Due to materials compatibility
  concerns and the hygroscopic properties of ethanol, ethanol generally is not
  added into the existing gasoline distibution system at the refineries.) The
  resulting ethanol blend, commonly known as gasohol, has higher volatility
  than either the ethanol or the original gasoline in isolation.
    Until EPA's Phase I volatility controls went into effect in 1989, gasoline
  volatility was essentially unregulated. EPA's volatility control program
  reversed the upward trend in gasoline volatility, and the resulting
  considerable increase in evaporative VOC emissions, by establishing limits on
  the volatility of summer gasoline. In promulgating the volatility control
  program, however, EPA granted a one pound per square inch (psi) volatility
  waiver for ethanol-containing blends. This waiver permitted continuation of
  splash blending of ethanol into gasoline without regulatory impediment,
  thereby avoiding what could have been a significant disruption to the
  existing market for fuel ethanol. For ethanol to continue to be blended in
  the absense of the waiver, refiners would have had to produce and market a
  special low volatility gasoline specifically for blending with ethanol. Since
  there was no assurance refiners would be willing to do so, the rule could
  have caused a dramatic decrease in the market share for ethanol blends that
  had developed under the existing Congressional and Administration programs.
  EPA believed it was important to avoid such a disruption to the ethanol
  industry, and as a result, granted a 1.0 psi volatility waiver.
    EPA believed that such a waiver would not significantly jeopardize the
  rule's air quality objectives for several reasons. First, even with the
  waiver the volatility of ethanol blends would be reduced considerably. In
  fact, the volatility of the ethanol blends would be reduced by the same
  amount (though not to the same level) as that of non-ethanol blends. Second,
  ethanol's market share was small, particularly in most ozone nonattainment
  areas, so the potential impact on ozone levels was thought to be small. At
  the then existing market share for ethanol, the waiver reduced by only about
  3 percent the volatility control that otherwise would have been achieved by
  both phases of the volatility control program. Third, the rulemaking neither
  required the use of oxygenates such as ethanol in gasoline nor was it
  expected to increase their use. Were this not the case, the environmental
  impacts of the waiver could have been considerably greater. Congress later
  incorporated a similar volatility waiver in the 1990 amendments to the Clean
  Air Act, when it established statutory limits on the volatility of
  conventional gasoline.
    As a result of the Federal and State initiatives and with the continued
  blending flexibility afforded by the volatility waiver, the market for
  ethanol grew from a fledgling industry in 1978 to a market which stabilized
  at approximately 0.8 billion gallons per year by 1990, an amount equivalent
  to slightly less than 1% of nationwide gasoline consumption.
    With the passage of the CAAA of 1990, the industry once again began to
  expand considerably. The oxygenated fuels program required by section 211(m)
  of the CAA requires that, during the winter months, all gasoline sold in
  certain cities with a history of exceedences of EPA's national ambient air
  quality standard (NAAQS) for carbon monoxide (CO) must contain oxygenates.
  Under this program (which began with the winter of 1992-93), ethanol has
  captured approximately 30% of the resulting oxygenate market. As a result,
  the demand for ethanol has grown by roughly 50% to an estimated 1.25 billion
  gallons in 1993.
    The oxygenate requirements of the reformulated gasoline program contained
  in section 211(k) of the CAA also provide the potential to expand
  considerably the market for ethanol and other renewable oxygenates. RFG is
  required in the nine cities with the nation's worst ozone pollution problem
  and has been adopted for many other ozone nonattainment areas as well as a
  key component in their efforts to improve air quality. The areas which will
  use RFG are estimated to represent 35% of all gasoline sold in the United
  States.
    The VOC emission performance standards for reformulated gasoline raised
  concerns in the ethanol industry that just as under the gasoline volatility
  control program, they will be unable to compete in the RFG market without a
  volatility waiver. However, section 211(k)(3) of the CAA establishes minimum
  emission performance standards that RFG must meet, with no allowance for a
  volatility waiver for ethanol-blended RFG. Furthermore, as discussed in the
  RFG final rule (59 FR 7716), providing such a waiver for ethanol-containing
  RFG would have jeopardized the emission benefits which Congress mandated the
  RFG program to achieve. For these reasons, the final regulations for
  reformulated gasoline do not contain such a volatility waiver for summer RFG.
    Thus, ethanol cannot be splash-blended into unmodifed gasoline blendstocks
  and still have the resulting blend comply with the RFG emission performance
  standards. Instead, either special reduced-volatility ("sub-RVP") blendstocks
  would be necessary during the summer, or the ethanol would have to be
  converted into ETBE. Many in the ethanol industry have continued to express
  concern that refiners would not produce such blendstocks. If that were to
  occur, ethanol producers would lose access during the summer months to those
  current markets which will be covered by the RFG program. This loss of
  access, the ethanol industry contends, could also lead to a reduced market
  share in RFG areas in the winter months, even though no volatility
  restrictions apply during those months. EPA has received numerous letters
  from various members of Congress emphasizing their belief that the RFG
  program was intended to provide a significant new market for ethanol and
  other renewable oxygenates. EPA has also received numerous letters from
  members of Congress opposing a renewable oxygenate requirement. In general,
  they were not opposed to the use of renewable oxygenates, but rather to EPA
  requiring their use. As discussed in section III.A, there was also a
  considerable amount of discussion concerning this issue during the
  Congressional debate over the 1990 CAAA.
    As stated in the RFG final rule, EPA continues to believe that ethanol will
  not be excluded from the oxygenate market under the RFG program. Rather, EPA
  believes that many refiners will find it economically attractive to blend
  ethanol in RFG. As a result, EPA believes a market for ethanol will continue
  following implementation of the RFG program. The RFG program represents a
  major new market for oxygenates such as ethanol. Nevertheless, EPA has
  received comments stating that without promulgation of today's rulemaking or
  other similar measures, creation of additional ethanol and renewable
  oxygenate blending capacity beyond that currently underway is in doubt. EPA
  recognizes that concerns over the marketability of ethanol in RFG have
  created substantial uncertainty for ethanol producers and investors.
    EPA believes that today's action will reduce that uncertainty and make the
  RFG program consistent with long-running Congressional and Administration
  policies to promote renewable fuels. This program represents an attempt to
  harmonize the goals of greater reliance on renewable fuels and air quality
  improvements through the use of RFG. Specifically, the renewable oxygenate
  requirement will ensure that RFG regulations do not inappropriately limit the
  growth of the renewable oxygenate industry. It will ensure that several
  oxygenates will be used in the RFG program and provide the renewable
  oxygenates a minimum market.
    It should be noted that the program encourages the use of all renewable
  oxygenates, not any one renewable oxygenate (as discussed more fully in
  section III). By providing market certainty the program will encourage
  expanded private investment in new, more efficient and environmentally
  beneficial renewable fuel production technologies. Such potential renewable
  oxygenates include ethanol from cellulosic plant material and waste cellulose
  and MTBE derived from methanol which was produced from municipal solid waste,
  landfill gas, or sewage sludge.
    The program establishes a minimum 30% market share for renewable
  oxygenates. This level represents a market share for renewables that EPA
  believes would likely have been achieved through open competition with
  nonrenewable oxygenates in the absence of VOC emission restrictions, based on
  experience under the oxygenated fuels program. At this market share an
  estimated 1.7 volume percent (on an ethanol equivalent basis) of reformulated
  gasoline will be derived from renewable resources.
    EPA is promulgating the renewable oxygenate program because of the
  important benefits of the program. First, EPA believes the program will help
  conserve fossil energy resources and minimize any detrimental effects the
  reformulated gasoline program may have on energy consumption. Second, EPA
  believes that the program has the potential to provide global warming
  benefits by providing stimulus to the market to develop new, more efficient
  production processes for renewable oxygenates and their feedstocks. In
  addition, EPA believes that the program as structured maintains the
  environmental benefits of the reformulated gasoline program as promulgated on
  December 15, 1993, and has the potential to increase these benefits through
  the incentives it provides for increased ETBE use during the summer months.
    The reformulated gasoline program promulgated in December of 1993 is
  projected to cause an increase in fossil energy consumption, as discussed in
  more detail in sections III.H and VI of this notice. Today's action is
  intended to mitigate to some extent the increase in fossil fuel consumption
  that otherwise would result from implementation of the RFG program. Today's
  action also provides the certainty needed to encourage private investment in
  more advanced and energy-efficient production facilities and more diverse
  feedstock utilization. This will not only increase the fossil energy benefits
  of this program, but also provide the opportunity for reductions in
  greenhouse gas emissions.
    Today's action will also create incentives to utilize ETBE during the
  summer months. Its use, relative to MTBE or ethanol, has the potential to
  achieve slightly greater VOC emission reductions beyond those required by the
  final rule for RFG. Ethanol-containing gasoline, when mixed with other
  gasoline, causes the mixture to produce greater VOC emissions than the
  original fuels would produce. This can occur even in a vehicle fuel tank.
  This effect is called commingling and is discussed in sections III.C and VI
  of this notice and in the Regulatory Impact Analysis for the reformulated
  gasoline final rule. The effect of such commingling on VOC emissions is not
  controlled directly by the RFG program. As a result, to the extent that ETBE
  use displaces ethanol use during the summer months, additional VOC emission
  benefits are possible. In addition, ETBE possesses front-end distillation
  characteristics relative to both ethanol and MTBE which are also not
  controlled in the reformulated gasoline final rule, and which may provide
  further (though not quantifiable with any certainty at the present time) VOC
  emission benefits during the summer should its use increase as a result of
  the incentives created by today's program.
    Finally, EPA believes that this program is designed in a way which provides
  maximum compliance flexibility for refiners and minimizes their burden. The
  program is an annual program with provisions for a refiner to average over
  the course of the year or trade credits with other refiners anywhere in the
  country. EPA believes that by designing the program in such a way, the
  objectives can be met at a minimum cost. These provisions are especially
  important during the initial startup of the program. While the renewable
  oxygenate program takes effect for refiners beginning December 1, 1994,
  individual refiners do not need to blend any renewable oxygenate into their
  gasoline until later in the year or at all if they so desire. They will just
  have to demonstrate that they met the requirements over the course of the
  entire year through either the blending of greater than 15% renewable
  oxygenates in the latter part of the year, or the purchase of credits from
  other refiners. As a result, the averaging and trading provisions effectively
  provide refiners with additional time to meet the initial requirements of the
  program.

  III. Renewable Oxygenate Requirement for Reformulated Gasoline

  A. Legal Authority

  1. Introduction

    The final rule adopted today is a reasonable exercise of the discretionary
  authority granted the agency under section 211(k)(1) of the Act. EPA
  interprets the first sentence of section 211(k) as broad authority to adopt
  reasonable requirements for reformulated gasoline, unless otherwise
  prohibited by the Clean Air Act or other statutory provision. EPA interprets
  the second sentence of section 211(k)(1) as authorizing EPA to adopt
  regulations for the reformulated gasoline program that result in the greatest
  emission reductions achievable, and at the same time tend to optimize the
  resulting impacts on cost, energy requirements, and other health and
  environmental impacts. In effect, EPA has full authority to adopt emission
  reduction standards and other requirements that achieve this result.1
    Note 1 Various commenters argued that statements in the Regulatory Impact
  Analysis supporting the FRM signed on 12/15/93 showed that EPA believed it
  did not have the legal authority to require the use of renewable oxygenates.
  To the contrary, EPA's proposal, also signed on 12/15/93, clearly described
  EPA's view that it did have the authority to require the use of renewable
  oxygenates. The statements in the RIA address renewable oxygenate
  requirements that would be significantly different from that proposed in
  December and would raise many of the same concerns described in the preamble
  to the final rule, such as increased emissions in the summertime from
  increased use of ethanol in the summertime. The prior statements in the RIA
  are not relevant to the proposal issued by EPA in December.

  2. Analysis of the Text of the Statute

    An analysis of EPA's authority starts with the text of the statute. Under
  the first sentence of that paragraph, EPA is authorized to:

  promulgate regulations under this section establishing requirements for
  reformulated gasoline to be used in gasoline-fueled vehicles in specified
  nonattainment areas.

  Under the second sentence of section 211(k)(1), EPA's regulations are to:

  require the greatest achievable reduction in emissions of ozone forming
  volatile organic compounds (during the high ozone season) and emissions of
  toxic air pollutants (during the entire year) achievable through the
  reformulation of conventional gasoline, taking into consideration the cost of
  achieving such emission reductions, any nonair-quality and other air-quality
  related health and environmental impacts and energy requirements.

    Section 211(k)(1) provides EPA general authority to establish reasonable
  requirements for reformulated gasoline, including emissions reduction
  requirements. Other provisions in section 211(k) address various specific
  elements of the program, such as minimum requirements for various fuel
  parameters (section 211(k)(2)), minimum emissions reduction requirements
  (section 211(k)(3)), certification requirements (section 211(k)(4)),
  prohibited acts (section 211(k)(5)), state opt-ins, (section 211(k)(6)), and
  credit programs (section 211(k)(7)).
    This interpretation of section 211(k)(1) is supported by the plain meaning
  of that provision. On its own terms, the first sentence stands as a general
  grant of authority to establish any reasonable requirement for reformulated
  gasoline, with no explicit restriction on this authority other than a one
  year deadline for agency action.
    The first sentence of section 211(k)(1) both grants authority to the agency
  and establishes a deadline for agency action. This structure is not at all
  uncommon, and was employed by Congress in several similar provisions adopted
  in 1990. See, e.g., section 211(h)(1) (regulation of Reid vapor pressure),
  section 211(i)(2) (regulation of motor vehicle diesel fuel), section 211(l)
  (regulation of gasoline detergent additives), and section 202(a)(6)
  (regulation of refueling emissions from motor vehicles). The general
  framework of section 211(k) is also not unique--a grant of broad general
  authority in (k)(1) followed by several detailed provisions that ensure
  certain minimum actions are taken. This is consistent with the approach taken
  by Congress in various other provisions of Title II of the Clean Air Act. For
  example, Congress granted EPA broad, general authority to regulate motor
  vehicles and their fuels, as in section 202(a) and section 211(c)(1). These
  grants of broad, general authority were then supplemented by detailed
  provisions providing specific actions that Congress expected in these areas.
  See, e.g., section 202(b), (f), (g), (h), and (i), as well as sections
  211(c)(2), 211(g), prior to the 1990 amendments, and the various paragraphs
  of section 211 cited above.
    The regulations adopted today are a reasonable exercise of this
  discretionary authority. They further Congressional goals by fostering
  achievement of the important benefits that Congress expected to flow from
  this program. They are not prohibited by any provision of the Act or any
  other law, and are well within the range of authority granted by Congress.
    The plain meaning of the second sentence of section 211(k)(1) corroborates
  EPA's view on it authority to issue this rule. This provision requires
  promulgation of regulations that require a certain result. The result desired
  by Congress is clear--the greatest achievable reductions, taking into
  consideration cost, energy, environmental and other impacts. There is no
  indication that EPA's authority is limited to establishing emissions
  reduction standards. In fact, this provision would authorize EPA to adopt all
  reasonable requirements designed to achieve the required result. The
  regulation adopted today is designed to ensure that the emissions reduction
  requirements for reformulated gasoline are achieved in a manner that
  reasonably optimizes the energy, cost, environmental, and other impacts of
  this program. The regulations adopted today, in combination with the
  regulations promulgated in December 1993, act together to achieve this
  result.
    Finally, EPA believes that section 211(k)(4) does not preclude the
  renewable oxygenate provisions proposed herein. Section 211(k)(4) states that
  the Administrator "shall certify a fuel formulation or slate of fuel
  formulations as complying with this subsection if such fuel or fuels--(i)
  comply with the requirements of paragraph (2), and (ii) achieve equivalent or
  greater reductions * * * than are achieved by a reformulated gasoline meeting
  the applicable requirements of paragraph (3)." This could be interpreted as
  requiring certification of a fuel that met the oxygen and other requirements
  of paragraph (2) and the emissions requirements of paragraph (3) even if it
  did not comply with the proposed renewable oxygenate requirement. Section
  211(k)(1), however, authorizes EPA to establish requirements above and beyond
  those required under paragraph (2) and (3), and section 211(k)(1) and (4)
  must be read together to provide a meaningful interpretation to both
  provisions. EPA believes that a reasonable interpretation requires
  certification of a fuel as reformulated as long as it complies with the
  requirements of paragraphs (2) and (3), as well as any additional
  requirements established under paragraph (1). Since the renewable oxygenate
  provision is an additional requirement established under section 211(k)(1),
  certification is not required under section 211(k)(4)(B) unless a fuel or
  slate of fuels complies with the requirement.

  3. Analysis of the Legislative History

    The legislative history of the reformulated gasoline provision supports and
  is consistent with EPA's interpretation of section 211(k). Changes made to
  various bills during the course of congressional review, as well as floor
  debates in the respective houses, indicate EPA was provided broad general
  authority to adopt requirements designed to achieve the objectives for this
  program. EPA's renewables requirement does just that, without inappropriately
  impinging on refiners' and importers' operational flexibility.
    a. House of Representatives--The bill reported by the House Committee on
  Energy and Commerce included provisions on reformulated gasoline that roughly
  paralleled the current provisions of section 211(k)(1). Under that provision,
  EPA was required to:

  promulgate regulations under section 211 establishing specifications for
  cleaner gasoline to be used in conventional gasoline fueled vehicles. Such
  standards shall require the greatest reduction in ozone-forming volatile
  organic compounds and air toxic emissions achievable through the
  reformulation of conventional gasoline, taking into consideration the cost of
  achieving such emission reductions, and health, environmental and energy
  impacts.2
    Note 2 H. Rep. No. 101-490, 101st Cong. 2d Sess. 60 (1990); reprinted at 1
  A Legislative History of the Clean Air Act Amendments of 1990 at 3021 (1993)
  (" Leg. Hist.").

    This provision is similar to current section 211(k)(1) in that it provides
  general authority to establish "specifications" for reformulated gasoline,
  and separately requires that these regulations include requirements to obtain
  the greatest achievable reductions in VOCs and air toxics. The Committee
  Report's description of this provision is fairly brief, with no indication
  that this general authority is limited to establishing emission reduction
  requirements.3
    Note 3 2 Leg. Hist. at 3321-21.

    Certain changes were made to this provision prior to its adoption by the
  House, reflecting an intent to expand at least somewhat the scope of agency
  authority. First, while the Committee bill authorized EPA to establish
  "specifications" for cleaner gasoline, the House bill used broader language
  authorizing EPA to establish "requirements," as currently found in section
  211(k)(1). Likewise, the second sentence of the Committee bill provision
  referred to "such standards," while the House bill broadened this to "such
  requirements." 4 The House intended to broaden EPA's authority, not limit it,
  and these changes were eventually adopted by Congress.
    Note 4 S.1630 as passed by the House of Representatives; 2 Leg. Hist. at
  2059.

    The Committee bill was amended in several other significant ways prior to
  final passage by the House. For example, many of the specific reformulated
  gasoline requirements now found in section 211(k)(2) through (10) were first
  debated and adopted on the floor of the House. Nonetheless, the general
  structure of section 211(k)(1) stayed the same with the exceptions noted
  above. This indicates that from the very beginning the House intended to
  provide EPA with broad general authority to establish reasonable requirements
  for a reformulated gasoline program. The vast bulk of the legislative history
  in the House is directed at the subsequent adoption of fairly specific
  minimum requirements for reformulated gasoline, with no indication that
  Congress intended to otherwise limit this broad, general grant of agency
  authority.
    b. Senate--The legislative history in the Senate likewise shows a desire to
  broaden EPA's authority in this area. The bill reported out of the Senate
  Committee on Environment and Public Works started from a more restrictive
  position and authorizing EPA to:

    (1) * * * promulgate regulations establishing specifications for fuel
  quality which will minimize, to the extent economically and technically
  achievable, emissions [of various pollutants] * * *. (2) In order to achieve
  and maintain attainment of ambient air quality standards, the Administrator
  may promulgate regulations * * * establishing specifications for fuels
  (including regulations requiring the availability or sale of fuels meeting
  the specifications in a nonattainment area or areas) to reduce emissions of
  pollutants subject to a standard under this title or hazardous air pollutants
  from motor vehicles. In establishing such specifications and availability
  requirements the Administrator shall consider other environmental effects
  which would result from production and use of fuels meeting the
  specifications.5
    Note 5 S. Rep. at 639-40. The relevant portions of the Mitchell-Dole
  substitute, Amendment No. 1293, debated on the floor of the Senate, were
  identical to the bill reported out of the Senate Committee. 5 Leg. Hist. at
  7552-54.

    This provision is much narrower than that reported out of the House
  Committee. The authority to establish "specifications" is clearly limited to
  specifications to reduce emissions of specified pollutants, and the
  specifications are limited to those aimed at achieving and maintaining
  attainment of the NAAQS. It also clearly requires that such specifications
  and requirements be written as performance standards.
    Most of the amendments and debate on this provision focused on a number of
  detailed minimum requirements that parallel the current reformulated gasoline
  provisions found in section 211(k)(2) though (10). However, certain very
  important changes were made to the general authority provisions. First, the
  second paragraph of the provision was replaced in its entirety with broader
  language that more closely parallels the version adopted by the House. The
  Senate approved a floor amendment by Senator Daschle requiring that:

    The Administrator, pursuant to paragraph (1) * * * promulgate regulations
  establishing specifications for reformulated gasoline to be used in
  conventional gasoline fueled vehicles [in specified ozone nonattainment
  areas].6
    Note 6 3 Leg. Hist. at 4383-88, 4 Leg. Hist. at 6816-18.

    This amendment removed the limitation that the specifications could only be
  designed to reduce emissions and achieve and maintain attainment,
  significantly broadening EPA's authority. Nonetheless, the provision passed
  by the Senate was narrower than the House bill. Even though paragraph one of
  the provision was somewhat similar to the second sentence of current section
  211(k)(1), the Senate bill did not contain a general grant of authority as
  found in the first sentence of section 211(k)(1). It also more narrowly
  authorized EPA to establish specifications, instead of requirements.
    c. Conference Committee Bill--The Conference Committee on the House and
  Senate bills rejected the Senate's narrower limits on general authority and
  instead reported out the broader, more general authority provision found in
  the House bill.7 This provision was then adopted in the final bill. This
  legislative history indicates that both houses, to different degrees, moved
  to broaden the agency's authority to implement the reformulated gasoline
  program. The final bill adopted by Congress rejected the narrower approach
  from the Senate and instead approved the more general language from the
  House. While there was little discussion of this, the textual changes
  described above lead to the conclusion that Congress intended to provide EPA
  with broad general authority to establish regulatory requirements for
  reformulated gasoline. There are no indications that Congress intended
  otherwise. EPA's interpretation is therefore fully consistent and supported
  by this legislative history.
    Note 7 1 Leg. Hist. at 1548.

    d. Floor debates in the two houses--The legislative history does contain
  extensive floor debate about the reformulated gasoline provisions. While
  these focus primarily on the specific requirements found in section 211(k)(2)
  though (10), they still provide important insight on overall Congressional
  intent for this program.8 First, Congress expected that this motor vehicle
  fuel program would provide several important benefits for the nation. Most
  obviously it would lead to major reductions in air pollution in the largest
  metropolitan areas with the worst ozone nonattainment problems, reducing
  ozone forming VOCs and toxic pollutants. Reformulating the gasoline used in
  conventional vehicles would constitute a significant component of the federal
  program to control motor vehicle pollution. There was a clear concern that
  gasoline had gotten more polluting over the prior twenty years, primarily
  through increased levels of aromatic compounds in gasoline, used to replace
  the octane previously obtained from lead additives. Benzene and aromatics
  were seen as the predominant air toxic threat.
    Note 8 The Conference Committee Report contains limited discussion of the
  reformulated gasoline program, and the Reports for the bills reported out of
  the respective House and Senate Committee's are of limited use as these bills
  were changed significantly prior to passage. The floor debates, however, do
  contain extensive discussion of the bills.

    Second, Congress emphasized that reformulated gasoline would provide
  benefits in the form of improving our energy security, reducing our reliance
  on foreign oil, and providing a major opportunity for the agricultural sector
  of our economy to market renewable alcohols and their derivatives. This would
  come from the use of oxygenates as gasoline additives, including renewable
  oxygenates like ethanol and ETBE. In effect, Congress intentionally designed
  the reformulated gasoline program to obtain emissions reductions benefits in
  a way that would promote these other very important benefits.9
    Note 9 For example, the following statements are from the floor debate on
  the Conference Committee bill: 1 Leg. Hist. at 851-856 (Sen. Durenberger); 1
  Leg. Hist. at 1154-71 (Sen. Simpson); 1 Leg. Hist. at 969 (Sen. Baucus); 1
  Leg. Hist. at 1073 (Sen. Dole); 1 Leg. Hist. at 1187 (Rep. Dingell); 1 Leg.
  Hist. at 1195 (Rep. Waxman); 1 Leg. Hist. at 1209 (Rep. Sharp); 1 Leg. Hist.
  at 1263-67 (Rep. Madigan); 1 Leg. Hist. at 1315 (Rep. Hall); 1 Leg. Hist. at
  1435 (Rep. Richardson). Similar statements were made during consideration of
  the respective House and Senate bills.

    Third, the structure developed by Congress to obtain these various benefits
  involved a complex balance between imposing detailed requirements and
  preserving refiner flexibility.10 The floor debates include detailed
  responses by individual members of Congress to various arguments that
  Congress was mandating "government gas" or a "recipe," or was mandating use
  of only one oxygenate, such as ethanol.11 The floor debates also show there
  was no common understanding of terms such as "fuel neutral," or "government
  gas," or even whether certain provisions did or did not require the use of a
  specific oxygenate such as ethanol. These debates do make clear, however,
  that Congress designed the detailed provisions in section 211(k)(2) through
  (10) to ensure achievement of various benefits from this program, while
  retaining an appropriate degree of refiner flexibility.
    Note 10 This complex balance can be seen in the various specific
  requirements of section 211(k). Congress established both specific content
  requirements (section 211(k)(2)) and minimum requirements for either a
  performance standard or a "formula," whichever EPA determined to be more
  stringent (section 211(k)(3)(A) and (B)). A certification program was also
  established, with EPA to certify any fuel that obtained emissions reductions
  of a fuel that met the requirements of section 211(k)(2) and (3). A credit
  program was also established for the three specific content requirements
  established in section 211(k)(2) and (3). Both the emissions performance
  standards and content requirements of section 211(k)(2) and (3) act as
  performance standards in light of the certification equivalency provision of
  section 211(k)(4). For example, the "formula" of section 211(k)(3)(A) acts as
  a performance standard based on section 211(k)(4).
    Note 11 From the debate on the Conference Committee: 1 Leg. Hist. at 853,
  855 (Sen. Durenberger); 1 Leg. Hist. at 1233 (Rep. Fields); 1 Leg. Hist. at
  1263 (Rep. Madigan); 1 Leg. Hist. at 1270 (Rep. Synar); 1 Leg. Hist. at 1325
  (Rep. Hall); 1 Leg. Hist. at 1395-7 (Rep. Moorehead). From the debate on the
  House bill: 2 Leg. Hist. at 2606, 2694-7, 2701-2, 2750-58 (Rep. Richardson);
  2 Leg. Hist. at 2716 (Rep. Dingell); 2 Leg. Hist. at 2717 (Rep. Lent); 2 Leg.
  Hist. at 2722 (Rep. Michel); 2 Leg. Hist. at 2733-34 (Rep. Synar). From the
  debate on the Senate bill: 4 Leg. Hist. at 6812, 15, 19 (Sen. Daschle); 4
  Leg. Hist. at 6820-21 (Sen. McClure); 4 Leg. Hist. at 6824 (Sen. Grassley); 4
  Leg. Hist. at 6825 (Sen. Nickles); 4 Leg. Hist. at 6829-30 (Sen. Wirth); 4
  Leg. Hist. at 6836 (Sen. Dole); 4 Leg. Hist. at 6836 (Sen. Johnston).

    Various statements were made by different members of Congress that any
  oxygenate could be used that met the oxygen content and emissions reduction
  requirements for reformulated gasoline.12 These statements reflect Congress'
  interest in retaining appropriate refiner flexibility. However, they only
  address compliance with the oxygen content requirement mandated under section
  211(k)(2) and the emissions reduction requirements mandated under section
  211(k)(1) and (3), and do not address compliance with additional requirements
  established under section 211(k)(1). They do not indicate an intention to
  preclude EPA from appropriately exercising its authority under section
  211(k)(1) to either require greater than the minimum reductions called for in
  section 211(k)(3) or to establish additional requirements like the renewable
  requirements. Given the ambiguity in the debates on this issue and the Act's
  provision that the requirements of (k)(2) be issued under the (k)(1)
  rulemaking authority, EPA believes this rule may also be considered a
  reasonable implementation of the (k)(2) oxygen content requirement.
    Note 12 See, e.g., 4 Leg. Hist. at 6812 (Sen. Daschle), and 1 Leg. Hist. at
  1216 (Rep. Sharp, noting that "[t]he Administrator may not discriminate among
  these different oxygenates, and should encourage fair competition among them.
  As long as the percentage weight requirement is met, and other requirements
  of new 211(k) . . . are satisfied, any oxygenate should be allowed to satisfy
  new United States needs.") Also see 1 Leg. Hist. at 1325 (Rep. Hall). EPA's
  renewables requirement is fully consistent with this--refiners may use any
  oxygenate as long as the resulting gasoline meets the oxygen content and
  renewable requirements established under section 211(k).

    This legislative history indicates that while Congress itself did not
  choose to mandate any one oxygenate or class of oxygenate, it also did not
  restrict EPA's ability to require the use of a class or category of
  oxygenates if that would reasonably ensure achievement of these benefits and
  would not inappropriately limit the operational flexibility of refiners and
  importers. The renewables requirement is entirely consistent with this
  approach. It is designed to achieve important goals, and includes provisions
  specifically designed to maximize the flexibility of refiners in meeting the
  requirement.13
    Note 13 Certain commenters claimed that the requirement was inconsistent
  with Congressional intent as expressed in the debate over the Energy Policy
  Act of 1992. Congress rejected an amendment to that bill which would have
  required that an increasing portion of the octane in all gasoline be obtained
  from domestically produced, renewable, nonpetroleum sources. The floor debate
  on this amendment indicates several reasons various members of Congress were
  opposed to this amendment, including concern that there would not be enough
  supply of ethanol, concern over possible interference with implementation of
  the Clean Air Act (based on a confusing provision addressing the
  interrelationship of the two laws and authority under the amendment for DOE
  to waive the requirement for air quality reasons), as well as concern over
  not being fuel neutral. EPA therefore believes that the rejection by the
  House of Representatives in 1992 of an amendment to an unrelated statutory
  provision, apparently based on a wide number of different reasons, is not
  relevant to Congress's prior intent in 1990 when it amended the Clean Air
  Act. Section 1508 of the Omnibus Budget Reconciliation of 1987 is much more
  relevant on the issue of Congressional intent and supports EPA's
  interpretation and rule. 42 U.S.C. 7545. In that provision, Congress found
  that the United States was increasingly dependent on the Middle East for its
  energy needs, that ethanol could be used in gasoline to produce a cleaner
  burning fuel and reduce pollution, and that ethanol was a renewable resource
  and its increased use would reduce farm program costs and grain surpluses and
  create new jobs. That bill explicitly states the sense of Congress that EPA
  should use its authority under the Clean Air Act to require greater use of
  ethanol as a motor fuel. EPA's renewable's requirement is fully consistent
  with this statutory provision.

    Most of the congressional debate focused on the various detailed
  requirements of section 211(k) such as the content requirements of section
  211(k)(2), and the emissions standards of section 211(k)(3). There was
  relatively little debate or discussion concerning the scope of EPA's general
  authority in section 211(k)(1). However, there are indications that this was
  considered a reservoir of broad, general authority.14 There was no indication
  that section 211(k)(1) did not mean what its plain language indicates--that
  Congress provided EPA with broad, general authority to establish the
  requirements for reformulated gasoline, including requirements that tend to
  optimize the energy and other benefits obtained by the emission reductions
  requirements.
    Note 14 From the debate on Conference Committee bill: 1 Leg. Hist. at 855-6
  (Sen. Durenberger noted that the performance standards and the formula were
  minimum requirements, and EPA had authority to require greater emissions
  reductions if appropriate); 1 Leg. Hist. at 968-69 (colloquy between Sen.
  Durenberger and Sen. Baucus on same point); 1 Leg. Hist. at 1219 (Rep. Sharp
  discusses the threat that EPA could exercise its authority to reinstate a
  program akin to the 1970's oil price and allocation controls); 1 Leg. Hist.
  at 128-9 (Rep. Bliley) ("It is vital that [section 211(k)(1)] be viewed as
  residual authority to modify the more specific requirements throughout. . .
  ."). From the debate on the Senate bill: 4 Leg. Hist. at 5052-3 (Sen. Symms
  recognized that the bill reported out of the Committee on Environment and
  Public Works provided EPA broad, general authority when he noted that "the
  bill directs the Administrator . . . to promulgate regulations establishing
  specifications for fuel quality. This, in essence, would give the
  Administrator the authority to mandate specific fuel formulations. . . .").

  4. Conclusion

    EPA's interpretation of its authority under section 211(k)(1) is a
  reasonable interpretation based on the plain language of the provision. The
  legislative history supports this interpretation and fails to show a contrary
  intent. The changes made in the reformulated gasoline provisions, and textual
  changes made in the two houses and in conference indicate an intent to
  broaden EPA's general authority. The floor debates support this and fail to
  show a contrary intent.
    EPA's exercise of authority under section 211(k)(1) also helps to obtain
  the important benefits identified by Congress for reformulated gasoline. The
  legislative history makes it clear that in addition to emissions reductions,
  Congress expected that reformulated gasoline would benefit the nation by
  obtaining various energy and other benefits from the expanded use of
  oxygenates, including specifically the benefits from using renewable
  oxygenates like ethanol and ETBE. EPA's interpretation and this rule are
  fully consistent with this Congressional goal.
    Congress established a complex statutory structure to ensure achievement of
  these various goals while retaining an appropriate degree of refiner
  flexibility. EPA's final rule is carefully designed with refiner flexibility
  in mind, and draws an appropriate balance between obtaining the benefits from
  using renewable oxygenates and retaining refiner flexibility. For example,
  the rule establishes as close to a performance standard as is currently
  possible, does not mandate one specific fuel or fuel additive, allows for a
  phase-in over two years to minimize disruption, allows averaging over a long
  time period, and allows for generation, use and trading of credits to show
  compliance. It also is carefully designed to minimize any adverse
  environmental impacts.
    EPA's interpretation of its authority is consistent with the plain language
  of the statute and its legislative history, and furthers the goals identified
  by Congress for this program. As such it is a lawful exercise of agency
  authority under section 211(k).

  B. Program Overview

    The renewable oxygenate requirement is one component of the reformulated
  gasoline program. It does not alter the emission performance standards or
  other provisions for the reformulated gasoline program contained in the final
  rule for reformulated gasoline (See 59 FR 7716; February 16, 1994). In
  addition, it does not mandate the use of any particular oxygenate, but rather
  ensures a specified minimum use of a range of oxygenates derived from
  renewable resources.
    As mentioned previously, EPA is requiring that 30 percent of the required
  2.0 weight percent oxygen content of all reformulated gasoline be produced
  using renewable oxygenates. Renewable oxygenates must meet two criteria for
  them to be used to comply with the requirements of the program. First, they
  must be produced from non-fossil fuel feedstocks (i.e., other than petroleum,
  natural gas, coal, or peat), or their oxygen content must derive from
  oxygenates produced from such feedstocks, as described more fully in section
  III.C.1 of this notice. Second, to be considered "renewable" when blended
  into VOC-controlled RFG, the oxygenate must not cause commingling-related
  increases in fuel volatility (i.e., the oxygenate must have a linear vapor
  pressure blending curve). In addition to the requirements of this program,
  renewable oxygenates must also be approved for use in gasoline in keeping
  with the provisions of section 211(f) of the Act, and must be approved for
  use in reformulated gasoline (i.e., certifiable under either the Simple or
  Complex Model, as discussed in the final rule for the RFG program).
    The oxygenates which are expected to meet these requirements, at least in
  the near term include: (1) Any alcohols derived from biomass or waste
  products other than untransformed fossil fuels, except when used in RFG
  designated as "VOC-controlled," and (2) all approved ethers produced from
  renewable feedstocks, when used in either VOC-controlled or non-VOC-
  controlled RFG. EPA recognizes that some non-ether oxygenates, including some
  alcohols, may not cause commingling-related increases in fuel volatility.
  Upon submittal of sufficient data demonstrating that addition of a non-ether
  renewable oxygenate does not cause a nonlinear increase in RVP, the
  Administrator may permit the oxygenate in question to receive credit under
  today's renewable oxygenate program when blended into VOC-controlled RFG.
  However, methanol and ethanol will not be granted such permission, since the
  nonlinearity of their effect on RVP is well-established at the present time.
    The program will be phased in over the course of two years. Fifteen percent
  of the minimum 2.0 weight percent oxygen content of reformulated gasoline is
  required in the form of renewable oxygenates, as defined above, from December
  1, 1994 through December 31, 1995 (hereafter referred to as the "first year
  of the program"). Thirty percent of the minimum oxygen content in
  reformulated gasoline is required to be from renewable oxygenates in 1996 and
  each year thereafter. As a result, on average reformulated gasoline will be
  required to have at least 0.30 weight percent oxygen content (15 percent of
  2.0 weight percent) provided by renewable oxygenates in the first year of the
  program and 0.60 weight percent oxygen content provided by renewable
  oxygenates in subsequent years.
    A program phase-in is necessary because the reformulated gasoline program
  takes effect at refineries December 1, 1994. As discussed more fully in
  section III.F of this notice, EPA is concerned that insufficient time is
  available for ethanol producers to adjust their production schedules, for
  ether suppliers to set up contracts for the purchase of renewable alcohols,
  for fuel producers to obtain supplies of renewable oxygenates for addition at
  the refinery or for blending with refinery-produced reformulated blendstock
  for oxygenate blending (RBOB), and for terminal operators to build and obtain
  permits for sufficient ethanol and ether storage and blending facilities in
  order to meet the full 30 percent requirement in 1995. Reformulated gasoline
  producers may also have to adjust their gasoline production plans to
  accommodate a different mix of oxygenates than they might have used in the
  absence of today's rule. The phase-in addresses these leadtime concerns,
  ensures a more orderly startup of the program, and minimizes the risk of any
  market disruptions.
    The applicable renewable oxygenate requirement (15 percent or 30 percent)
  applies year-round. The requirement is measured on an oxygen-equivalent basis
  (i.e., credit given according to the oxygenate content of the RFG) and is
  based on a per gallon oxygen content of 2.0 weight percent which is
  consistent with the minimum per gallon oxygen content standard in the RFG
  program. However, the renewable oxygenate requirement must be met on an
  annual average basis and need not be met on a per-gallon basis. This
  requirement applies to all refiners or importers of reformulated gasoline
  and/or RBOB. It does not apply to oxygenate blenders, pipeline operators, or
  terminal operators, though such parties are required to abide by any
  restrictions regarding the type of oxygenate that may be blended into RBOB
  provided by refiners. Specifically oxygenate blenders, pipeline operators and
  terminal operators will have to adhere to the RBOB blending limitations not
  only of the RFG final rulemaking, but also the additional limitations
  resulting from today's rulemaking. If a state exercises the option discussed
  in section III.G of this notice to address shoulder season concerns, the
  enforcement requirements on terminal operators may be slightly altered.
    Refiners and importers of reformulated gasoline are also permitted to
  generate and trade, on a nationwide basis, credits earned from use of
  renewable oxygenates in excess of the applicable minimum requirement to other
  producers desiring to use a lesser volume of renewable oxygenates. Such
  credits can be used to satisfy part or all of a refiner's renewable oxygenate
  requirement for the same calendar year that the credits are earned. No
  banking of credits between calendar years is allowed. The averaging and
  trading provisions established today for the renewable oxygenate program will
  have no adverse environmental impact since today's action does not alter the
  VOC, toxics, and NOX emission performance standards for reformulated
  gasoline.
    The effect of these averaging and trading provisions is to greatly expand
  the flexibility afforded refiners, particularly during the initial startup of
  the program. While the renewable oxygenate program takes effect for refiners
  beginning December 1, 1994, individual refiners do not need to blend any
  renewable oxygenate into their gasoline until later in the year or at all if
  they so desire. They will just have to demonstrate that they met the
  requirements over the course of the entire year through either the blending
  of greater than 15% renewable oxygenates in the latter part of the year, or
  the purchase of sufficient credits from other refiners. As a result, the
  averaging and trading provisions effectively provide refiners with additional
  time to meet the initial requirements of the program, and allows them to
  smoothly ramp up their use of renewable oxygenates during the course of the
  first year to the full 30% requirement in 1996.
    The renewable oxygenate requirements are placed at the refinery level and
  will apply to reformulated gasoline sold in all the covered areas, including
  the opt-in areas and the two covered areas in the State of California (Los
  Angeles and San Diego). Details of the enforcement program are discussed in
  section IV of this notice. Refiners who produce reformulated gasoline for use
  in California beginning in March 1996 are exempt from most federal
  reformulated gasoline reporting, recordkeeping, and similar enforcement
  requirements. As a result, refiners producing California reformulated
  gasoline are not currently required to distinguish between gasoline volumes
  sold in Los Angeles or San Diego and gasoline sold in other parts of
  California. However, the renewable oxygenate provisions promulgated today
  will apply to reformulated gasoline sold in Los Angeles and San Diego, as
  discussed in section IV of this notice in greater detail.
    The Agency received a number of comments concerning impacts of the program
  on VOC emissions during the "shoulder season." After considering the issue,
  EPA has decided that a limited change to the program to address the shoulder
  season concerns is warranted. As discussed in section III.G, EPA has included
  in the final rule a provision which would allow EPA to extend the limitations
  on the blending of certain renewable oxygenates which exhibit volatility-
  related commingling effects to the shoulder season within individual states
  upon receipt of a petition from the Governors of the states if certain
  requirements are met.

  C. Renewables Requirement and Definition

  1. Renewables Definition

    The definition of renewable oxygenates adopted in this final rule has been
  expanded from that contained in the proposal, but nevertheless it is intended
  to limit credit toward the renewable oxygenate requirement to those
  oxygenates which EPA expects to yield net fossil fuel savings. The final
  definition is structured so as to exclude from the renewables definition
  oxygenates produced in their entirety from nonrenewable sources such as coal,
  oil, peat, and natural gas due to their non-renewable, fossil nature. The
  definition includes oxygenates derived wholly from renewable biomass sources
  including but not limited to corn and other grains, other food products, and
  cellulosic plant material. It also includes oxygenates derived from waste
  products such as waste cellulose and plastics, sewage, sawdust, scrap tires,
  and methane recovered from landfills. EPA recognizes that some of these waste
  products may have been derived from fossil hydrocarbon sources. Including
  these sources in the set of permissible feedstocks will not by itself result
  in increased generation of such wastes, however, and hence will not increase
  consumption of materials which can be used as fossil fuels.
    The definition excludes waste products that are untransformed from their
  original fossil fuel form. As a result, methane captured from landfills would
  qualify as a renewable feedstock but natural gas currently flared at the
  wellhead or refinery would not qualify as a renewable feedstock, since it
  would be used in its untransformed state as an oxygenate feedstock and is in
  fact a fossil fuel.
    It should be noted, however, that the definition includes oxygenates whose
  oxygen content comes from another renewable oxygenate. As a result, ethers
  derived from renewable alcohols and isobutylene which was produced from oil
  or natural gas would qualify as a renewable oxygenate, whereas ethers derived
  from nonrenewable alcohols would not qualify regardless of the source of
  isobutylene.
    Like all gasoline additives, renewable oxygenates must meet the
  requirements of section 211(f) of the Clean Air Act or be waived from those
  requirements. In addition, reformulated gasoline containing renewable
  oxygenates must be certifiable under the appropriate RFG emission model (as
  set forth in Sec. 80.42 and Sec. 80.45 of the Code of Federal Regulations).

  2. Renewable Oxygenates for Summer RFG

    Alcohols and other oxygenates which cause commingling-related volatility
  increases used in VOC-controlled reformulated gasoline will not receive
  credit toward the 30 percent renewable oxygenate requirement for two reasons.
  First, EPA does not want incentives created by the renewable oxygenate
  program to diminish the VOC benefits of the RFG program during the high ozone
  season. As discussed in the RFG final rule and RIA and elsewhere in this
  notice, a program which would encourage increased use of ethanol (and by
  extension any other oxygenates with a similar non-linear vapor pressure
  blending curve) in summer RFG introduces a number of serious concerns related
  to increased VOC emissions. Second, as discussed in the proposal, the process
  energy needed to offset the direct vapor pressure boost from ethanol, the
  primary renewable oxygenate used in gasoline today, negates the fossil energy
  savings from ethanol. The vapor pressure boost must be offset to comply with
  the VOC emission performance standards for summer RFG. EPA would expect a
  similar situation to apply to other oxygenates that increase the vapor
  pressure of gasoline.
    Direct RVP increases are controlled and accounted for in summer
  reformulated gasoline by the RFG program. However, alcohols such as ethanol
  and methanol can create commingling problems in vehicle fuel tanks which are
  not reflected in the RFG emission models. Commingling can significantly
  increase average in-use fuel volatility which leads to higher emissions of
  VOCs, an ozone precursor. EPA believes that by not granting credit toward the
  renewable oxygenate requirement during the summer for commingling oxygenates,
  today's program will not encourage increased use of these oxygenates during
  the high ozone season, thereby avoiding the VOC emission increases that would
  result from such increased use. In fact, today's provision has the potential
  to stimulate the use of ETBE during the summer months, which could displace
  ethanol use that otherwise may have existed under the RFG program, thereby
  reducing commingling related emission increases during the high ozone season.
    As discussed in the Regulatory Impact Analysis /15/ (RIA) for the RFG Final
  Rule, a thirty percent ethanol blend market share in a Phase I VOC-controlled
  gasoline pool in VOC Control Region 1 would increase the effective average
  RVP of the gasoline pool (even if the ethanol blends and non-ethanol blends
  have the same RVP) and thereby increase total VOC emissions (including both
  exhaust and non-exhaust VOC emissions) relative to a scenario in which
  ethanol blends had zero market share. EPA estimated in the RIA for the RFG
  Final Rule that the commingling-related increase in VOC emissions from a
  thirty percent market share for ethanol-blended RFGs would result in a VOC
  increase of approximately two to three percent. In other words, the
  commingling effect would reduce RFG's Phase I VOC benefits by up to twenty
  percent. While EPA was aware of the commingling effect during the development
  of the Complex Model, the effects could not be reliably estimated in time for
  proposal and, since adding the commingling effect to the Complex Model would
  have represented a considerable change to the model, EPA deferred adding the
  effect to the Complex Model at the time of the RFG final rule.
    Note /15/ Final Regulatory Impact Analysis for the Reformulated Gasoline
  Program, FSSB, RDSD, OMS, OAR, US EPA, December 1993, document number V-B-1,
  EPA Docket A-92-12.

    The commingling effect does not occur when ethers are blended with
  gasoline. Furthermore, such blends are projected by DOE /16/ to require less
  fossil energy than would RFG containing nonrenewable oxygenates. As a result,
  this program allows renewable ethers blended into VOC-controlled RFG to
  receive renewable oxygenate credit during the high ozone season. Under the
  final rule, the Administrator may allow renewable alcohols other than ethanol
  and methanol and renewable oxygenates other than alcohols and ethers to
  receive such credit if sufficient information demonstrating the absence of
  any commingling effects is submitted for the approval of the Administrator.
  As with any fuel additive, they would also have to meet the requirements of
  section 211(f) of the CAA, and the RFG containing such an additive must be
  certifiable under the Simple Model or Complex Model, whichever is applicable.
    Note /16/ "Energy Requirements and CO2-Equivalent Emissions of RFG," U.S.
  Department of Energy, June 6, 1994 and March 17, 1994 (draft).

    Outside of the ozone season, VOC reductions are not required in
  reformulated gasoline for ozone control and RVP is not controlled. At such
  times, renewable alcohol blends would produce the desired fossil energy
  savings and potential greenhouse gas emission reductions. Therefore, EPA will
  give credit to renewable alcohols blended into non-VOC-controlled RFG, the
  use of which is restricted to the non-high ozone season. The only exception
  to this, as discussed in section III.G, is during shoulder season months
  where based on a request from the Governor of a State, EPA has extended the
  non-commingling season beyond the VOC control season. Should that occur,
  oxygenates which exhibit commingling effects would not be given credit toward
  the renewables requirement in that State during the shoulder season as well.

  3. Performance-Based Definition of Renewable

    In its proposal, EPA solicited comments on the proposed definition of
  renewable oxygenates and, in particular, on the potential for establishing a
  performance requirement based on energy consumption and/or greenhouse gas
  emissions to define renewable oxygenates. After further consideration and
  evaluation of the comments received, EPA has decided not to promulgate a
  numerical type of performance-based standard for renewable oxygenates for a
  number of reasons. First, the degree of scientific uncertainty associated
  with quantifying energy consumption and emissions of different greenhouse
  gases throughout the entire life cycle of various oxygenates is considerable.
  Second, even if life cycle emissions could be estimated, based on comments on
  the proposal and discussions with EPA's Global Change Division there is
  currently insufficient scientific consensus on the relative warming potential
  of various greenhouse gases, notably VOC and NOX (the bulk of the emissions
  other than CO2), to provide reliable comparisons. Third, EPA has concluded
  that at the present time it would be difficult and costly to collect and
  verify the necessary data to implement a performance-based standard for
  renewable oxygenates, to the point where the recordkeeping and reporting
  burden could discourage new, more efficient feedstock and oxygenate
  production practices. Fourth, EPA believes that the definition of renewable
  oxygenates contained in this rule is sufficient to provide certainty that
  fossil energy savings are being achieved without the establishment of a
  numerical performance standard. As discussed below in section III.C.4, the
  group of oxygenates derived from renewable sources are expected to achieve
  energy and greenhouse gas emission performance levels roughly equivalent to
  or better than those achieved by ethanol alone. For these reasons, EPA does
  not believe it to be appropriate at the present time to institute a
  performance standard for renewable oxygenates. However, the Agency reserves
  the right to alter its definition of "renewable" to a performance-based
  standard in the future if a reasonable, workable, and enforceable definition
  can be developed.

  4. Renewable Alcohols/Ethers Limitation

    In the December NPRM, the only oxygenates included in the proposed
  definition of renewable oxygenates were ethanol and methanol produced from
  renewable feedstocks and their ether derivatives. However, EPA recognizes
  that for a number of reasons the production of other oxygenates from
  renewable feedstocks is likely to produce fossil energy savings similar to
  that for renewable methanol and ethanol. First, many of these other
  oxygenates may at times be produced as co-products or by-products of methanol
  or ethanol production. As a result, they should have similar fossil energy
  balances. In fact, if by including them in today's definition they are not
  forced to be separated out from the ethanol and/or methanol to make them
  pure, it could help reduce energy expenditures. Second, even if not co-
  products, they are likely to be produced from similar feedstocks using
  similar production practices as those currently used for renewable ethanol
  and methanol. As a result, the energy balance should not be significantly
  different. In fact, the energy balance could very well be better, since the
  energy balance of either the oxygenate production itself, or that associated
  with blending it into RFG, may be the reason prompting the production of the
  other oxygenates in lieu of ethanol or methanol. Third, in order for these
  other oxygenates to compete in the marketplace with renewable ethanol or
  methanol they will need to be cost competitive. Since the energy inputs
  represent a significant portion of the costs of renewable oxygenate
  production, these other oxygenates are unlikely to be produced (unless they
  are co-products as discussed above) unless they are at least as energy
  efficient as the alternatives. Furthermore, if they are able to compete, the
  oxygenate they are likely to displace from the marketplace will be the
  marginal renewable oxygenate production which is the most costly and
  inefficient to produce and therefore provides the least energy savings to
  begin with. Fourth, while EPA does not expect these oxygenates to represent a
  large portion of the renewable oxygenate market, their exclusion from the
  definition might hinder their entry into the market and hinder the
  development of new, energy efficient renewable oxygenate production
  technologies.
    As a result, EPA is including other oxygenates produced from renewable
  feedstocks in its definition of permitted renewable oxygenates under today's
  rule. As discussed above, however, such oxygenates cannot be blended during
  the high ozone season unless either they are converted to an ether form, or
  it can be demonstrated that they do not cause a volatility increase when
  commingled with other gasoline blends.
    Although several commenters supported the petition process which EPA
  proposed as an optional means to respond to future developments in oxygenate
  technology, the Agency is limiting this petition process to determining
  whether the renewable oxygenate exhibits commingling effects which are
  relevant to their use under this program during the summer months. As
  discussed above, EPA is extending the definition of renewable oxygenate based
  on its determination that all oxygenates derived from renewable sources and
  expected to be used to comply with this program should exhibit energy
  benefits similar to those resulting from ethanol use.

  D. Averaging and Trading

    EPA is promulgating averaging and trading provisions, as proposed, for the
  oxygenates in reformulated gasoline receiving renewable credit under today's
  program. Refiners are allowed to average the renewable oxygen content of
  reformulated gasoline over the calendar year. During the first year, however,
  the averaging period will run for 13 months, from December 1, 1994 through
  December 31, 1995, to track the time period for the other RFG requirements.
  Refiners are also allowed to trade credits earned by exceeding the renewable
  oxygenate requirement to other refiners. No banking of credits from one year
  to the next, however, is allowed, in order to keep the program as simple as
  possible.
    Averaging and trading provide refiners many benefits. For example,
  averaging provides refiners with production flexibility, since every gallon
  need not meet the renewable oxygenate requirement. Trading provides
  additional flexibility by permitting refiners to specialize: it may be more
  cost-effective for some refiners than others to produce reformulated gasoline
  with a renewable oxygenate content. Trading enables those refiners for whom
  it is less cost-effective to buy renewable credits from those who find it
  more cost-effective to blend renewable oxygenates. Averaging and trading also
  allow refiners to avoid any cost associated with compliance margins, since
  refiners will not need to blend renewable oxygenates in excess of the 30
  percent requirement to assure compliance.
    These provisions are especially important during the initial startup of the
  program. While the renewable oxygenate program takes effect for refiners
  beginning December 1, 1994, individual refiners do not need to blend any
  renewable oxygenate into their gasoline until later in the year, or at all if
  they so desire. They will just have to demonstrate that they met the
  requirements over the course of the entire year through either the blending
  of greater than 15% renewable oxygenates in the latter part of the year, or
  the purchase of credits from other refiners. As a result, the averaging and
  trading provisions effectively provide refiners with additional time to meet
  the initial requirements of the program, and allows them to smoothly ramp up
  their use of renewable oxygenates during the course of the first year to the
  full 30% requirement in the second year (1996).

  1. Averaging Period

    USDA submitted comments to the Agency encouraging a season-specific
  averaging program, rather than an annual averaging program. USDA argued that
  requiring the renewables requirement to be met separately for VOC-controlled
  and non-VOC-controlled gasoline would increase the energy and environmental
  benefits. Specifically, USDA suggested that a season-specific program would
  provide additional incentives to convert ethanol that would otherwise have
  been blended directly into summer RFG into the form of ETBE. USDA argued that
  the resulting reduction in summer ethanol use would further reduce
  commingling effects and lead to additional VOC emission reductions due to the
  distillation characteristics of ETBE. USDA suggested that a season-specific
  program would provide the potential for ethanol market share to expand beyond
  30 percent in future years. The reader is referred to the RIA for a detailed
  discussion of the seasonal averaging program suggested by USDA.
    EPA has considered the issues raised by USDA, and has decided to retain the
  annual averaging period proposed in the December NPRM, based on an analysis
  of the logistical, energy, environmental, and cost impacts of splitting the
  summer and winter seasons. First, seasonal averaging would require ETBE use
  in VOC-controlled reformulated gasoline, which presents serious capacity
  problems in the short-term. Although only minor modifications are necessary
  in order to produce ethers from ethanol rather than methanol, it will take
  some time to make those ether production facility conversions and to acquire
  the necessary construction and operating permits. EPA's analysis indicates
  that insufficient ETBE capacity would be available to fully meet the summer
  requirements of a season-specific renewable program in 1995 and likely also
  1996. As a result, a seasonal averaging program would have to be delayed and/
  or phased in. Since, as discussed below, EPA anticipates the Phase II RFG
  requirements to stimulate the use of ETBE, a phased-in requirement might have
  little actual impact on ETBE use. In addition, a split season program would
  introduce additional complexity and expense to the renewable oxygenate and
  reformulated gasoline programs. ETBE is more expensive on an oxygen content
  basis than either MTBE or ethanol, and ETBE provides smaller toxics emission
  reductions than other oxygenates included in EPA's RFG emission models, which
  refiners would have to offset through other fuel controls. Thus, forcing ETBE
  use in summer gasoline in order to meet a season-specific renewable oxygenate
  requirement could have increased the cost of compliance with the annual
  toxics requirement of the reformulated gasoline rule, especially under Phase
  I of the RFG program, and complicated implementation of the RFG program given
  the short leadtime available. This problem would have been particularly
  severe during the initial years of the program, since the refinery
  modifications necessary to offset the increase in toxics emissions can
  require several years to complete, and since the value of ETBE's RVP benefits
  will increase only when the Phase II RFG standards are implemented.
    Furthermore, EPA concluded that the purposes of the program could be
  achieved without a season-specific program. The renewable oxygenate program
  is being promulgated to provide two primary benefits: reducing the fossil
  energy impact of RFG, and stimulating the development of renewable fuels
  which can lead to greenhouse gas emission benefits, this would supplement the
  VOC and toxics emissions reduction benefits from RFG. ETBE use per se is not
  required to obtain these benefits. Based on the DOE analysis, ETBE use during
  the summer does not provide any additional fossil energy benefit than ethanol
  use in the winter, and in fact, results in a slightly smaller fossil energy
  savings. The program may also achieve some marginal crude oil savings and
  some additional VOC emission benefits with the use of ETBE during the summer
  months (due to the favorable front-end distillation characteristics of ETBE
  relative to ethanol and MTBE). However, EPA does not believe a split season
  is necessary to stimulate the use of ETBE in the summer months, particularly
  when the Phase II RFG standards take effect.
    In summary, EPA believes that a season-specific program would offer minimal
  energy and environmental benefits, would increase complexity and impair
  compliance flexibility resulting in increased costs in complying with the
  program, would likely run into near-term capacity limitations, and would have
  no impact on the overall use of renewable fuels. As a result, EPA considers a
  season-specific program to be unnecessary in order to achieve the objectives
  of this program.

  E. Level of Renewables Required

  1. Existing Renewables Market Share

    During the rulemaking process, EPA considered requiring greater and lesser
  levels of renewable oxygenates and requested comment on the appropriateness
  of the proposed 30 percent level for renewables. Under the winter oxygenated
  fuels program, which began in 1992, ethanol has been used in approximately 30
  percent of the oxygenated gasoline. That program includes certain areas that
  will require RFG, but in general it focuses on non-RFG areas with wintertime
  carbon monoxide (CO) problems. Based on this experience, it appears that
  splash-blended ethanol can be expected to be used in at least thirty percent
  of the oxygenate market when the RVP increase resulting from the blend is not
  constrained, given existing incentives for the use of ethanol and other
  renewable oxygenates. The 30 percent requirement for the renewable oxygenate
  program helps assure that, at minimum, renewable oxygenates will be used to
  an extent similar to what would have occurred in the RFG-related oxygenate
  market had the air quality imperatives of the RFG program not required
  constraints on RVP levels. This will avoid a situation where the requirements
  and complexity of the RFG program limit the growth of renewable oxygenate
  use. Today's renewable oxygenate requirement will in effect set a floor to
  avoid reduced use of renewable oxygenates in the future. It does not set a
  ceiling, and should not interfere with growth of renewable oxygenate use.
  There are no similar restrictions placed on the remaining 70 percent of the
  RFG oxygenate market. As discussed below in section III.E.4, if MTBE
  dominates this portion of the RFG oxygenate market as anticipated, MTBE use
  will still grow dramatically over its current demand.

  2. Renewables Production Capacity

    In the December proposal, EPA stated that given the current absence of
  renewable methanol capacity, ethanol and its ether derivatives were likely to
  be the primary oxygenates used to meet the renewable oxygenate requirement in
  the short term. Based on 1990 data, EPA estimated that the 30 percent
  renewable oxygenate requirement would require an average production of
  roughly 630 million gallons of ethanol per year, or about 60 percent of EPA's
  estimate of current ethanol production capacity of roughly one billion
  gallons per year. EPA has updated these estimates, as discussed more fully in
  the RIA, and now estimates that approximately 670 million gallons per year of
  ethanol will be needed to meet the requirements of the renewables program
  alone in the 1995-1996 time frame. Other analyses have reached similar
  conclusions; for example, USDA's analysis indicates that the 30 percent
  renewable oxygenate requirement would require an average production of 680
  million gallons per year. As discussed below in section III.F, EPA believes
  that this new demand can be met, provided there is a phase-in of the program
  in 1995. A phase-in will give oxygenate producers, refiners, and terminals
  one additional year to obtain permits, construct facilities and negotiate
  contracts before the full program goes into effect in 1996.

  3. Comments Regarding the Level of Renewables

    The majority of comments from ethanol suppliers and feedstock producers who
  addressed the appropriate level of renewable oxygenates supported the 30
  percent requirement. The primary rationale for their support was that the
  current market share for ethanol in the oxygenated fuels program should be
  maintained.
    Comments were received recommending both higher and lower levels of
  renewable oxygenates. Higher levels were suggested in the belief that the
  ethanol industry needed the additional encouragement through just such an
  incentive to grow at a more desirable rate. At this point in time, however,
  the 30 percent renewables requirement in those areas covered by the RFG
  program represents a considerable stimulus to the renewable oxygenate
  industry. EPA believes that a larger renewable oxygenate requirement would
  call into question the near-term feasibility of the renewables program.
  Furthermore, EPA believes that the 30 percent level is all that is necessary
  to overcome the ethanol blending limitations in RFG caused by the VOC
  performance standard, since this is the level ethanol was able to achieve
  absent any blending restrictions under the winter oxygenated fuels program.
  In addition, the 30 percent renewables requirement being promulgated today is
  a minimum requirement. It does not prevent renewable oxygenates from
  increasing their share of the gasoline oxygenate market.
    Many of those opposing the 30 percent requirement argued that it could
  create the potential for supply disruption and significant cost increases in
  the short-term. The oil and MTBE industries objected to the necessity for a
  renewable oxygenate program out-of-hand. They argued that since ethanol
  already has a large portion of the current wintertime oxygenated fuel market
  and since the market for ethanol would likely increase when the RFG program
  begins in 1995, the 30 percent renewable oxygenate program was unnecessary.
  Others, notably state air pollution control officials, recommended that the
  30 percent requirement be lowered to 10 percent in order to mitigate any
  potentially negative environmental and energy impacts, as well as to allow
  the market more input in selecting the oxygenates used in the program. EPA
  has considered these comments but continues to believe that the 30 percent
  requirement is appropriate and feasible given the energy and environmental
  benefits of the renewables requirement and long-running governmental policies
  to promote renewable fuels. The basis for these conclusions is discussed
  elsewhere in this notice and in the RIA.

  4. Implications for Non-Renewable Oxygenates

    EPA believes the 30 percent level will provide the benefits identified
  above and stimulate the development of a diverse supply of oxygenates for the
  oxygenate market. The 30 percent requirement will ensure a strong role for
  renewable oxygenates in the RFG program while still permitting the majority
  of the RFG oxygenate market share to be open to any oxygenate, regardless of
  the feedstocks used to produce it. Even with today's rule, production of MTBE
  and its methanol feedstock is projected to increase because of the increased
  demand for oxygenates in the United States as the RFG program takes effect.
  MTBE demand would increase by 3.1 billion gallons annually if it is used in
  all of the remaining 70 percent of the RFG oxygenate market. Such an
  expansion equals an approximate increase of 170 percent from current MTBE
  usage levels. While EPA acknowledges that MTBE and methanol demand might be
  even greater in the absence of today's rule, it is important to note that the
  RFG program is likely to result in dramatic growth in MTBE, methanol, and
  ethanol production. Furthermore, MTBE producers can modify their facilities
  at relatively modest expense to produce ETBE if its use should prove
  economically advantageous given the requirements of the RFG program and
  today's rule.
    Similar conclusions hold true for the natural gas industry. Natural gas is
  used to produce methanol and isobutylene, which in turn are used to produce
  MTBE. Since MTBE production is projected to grow from current levels as a
  result of the RFG program, EPA expects the demand for natural gas for
  oxygenate production to grow as well. Furthermore, isobutylene derived from
  natural gas is expected to play a major role in ETBE production. It should
  also be noted that oxygenate production represents a small portion of total
  demand for natural gas.
    For these reasons, EPA does not believe that today's action will result in
  significant adverse effects on the MTBE, methanol, or natural gas industries,
  as their markets will dramatically increase with or without today's action.
  This is particularly the case since a considerable amount of ethanol was
  likely to have been used to satisfy the RFG program requirements absent
  today's rule. As discussed in section III.F, based on the expansion of
  ethanol production capacity planned prior to this rule, ethanol could
  potentially have been used to fulfill 15 percent of the oxygenate requirement
  of the RFG program.

  F. Timing and Phase-In

  1. Introduction

    In the NPRM, EPA proposed to require that renewable oxygenates be used to
  meet 30 percent of the 2.0 weight percent oxygen requirement for the RFG
  program. However, at that time EPA was concerned whether adequate supplies of
  renewable oxygenates would be available and whether the distribution
  infrastructure was sufficient during the initial years of the program without
  disrupting existing markets for such oxygenates or incurring excessive costs.
  With that in mind, the proposal requested comments concerning these issues.
  More specifically, comments were requested on the appropriate level of the
  renewable oxygenate requirement, leadtime requirements associated with
  providing adequate renewable oxygenate supplies, the potential need for a
  phase-in period, and any other supply-related issues. In response, EPA
  received considerable information on the current and projected supply of
  renewable oxygenates, as well as less complete information regarding the
  logistics of renewable oxygenate distribution. The detailed analysis is
  contained in the Regulatory Impact Analysis (RIA), and is summarized below.
  Based on the projected supply of renewable oxygenates over time and the
  leadtime required to establish blending and storage facilities, EPA has
  concluded that, while the market can readily bear a 30 percent requirement
  given adequate leadtime, a phase-in of the 30 percent requirement is
  necessary. Therefore, EPA is requiring that 15 percent of the RFG program's
  2.0 weight percent oxygen requirement be met from renewable oxygenate sources
  in 1995, and that the full 30 percent of the oxygen requirement be met from
  such sources in 1996 and thereafter.
    The purpose of EPA's analysis was to determine whether sufficient renewable
  oxygenate supply, distribution, tankage, and blending capacity would be
  available in 1995 and 1996 to meet the program requirements. Failure to have
  sufficient supply, distribution, tankage, or blending capacity for the
  considerable increase in renewable oxygenate demand could result in shortages
  or price spikes and could interfere with the orderly implementation of the
  reformulated gasoline program.
    In addition, EPA considered it to be desirable for a variety of reasons to
  limit to the extent possible any need to displace substantial amounts of
  ethanol from existing markets. First, displacing ethanol from existing
  markets would do nothing to expand the use of renewable oxygenates and
  achieve the resulting benefits. Second, shifting ethanol from existing
  markets to RFG markets would not stimulate the introduction of more advanced
  renewable fuels production technology. Third, as described in sections III.H
  and VI of this notice, the use of ethanol from new or expanded plants is
  projected to displace more fossil energy than would ethanol from existing
  plants. Fourth, relatively high prices for ethanol would be needed to
  displace it from existing markets, leading to higher than necessary price
  increases for RFG during the initial years of the program. Ethanol purchase
  contracts may already be established for 1995, and breaking such agreements
  in order to shift ethanol from existing gasoline markets to RFG markets might
  be difficult and costly. Furthermore, approximately half of current ethanol
  consumption occurs in states which offer substantial tax credits for ethanol
  blends. These credits are equal in value to between 10 and 20 cents per
  gallon of ethanol. To induce ethanol suppliers to shift ethanol from such
  markets to unsubsidized markets would likely require a purchase price in
  excess of current market prices for ethanol equal to or greater than the
  value of the tax credits available in existing markets. In addition, ethanol
  is currently used in many markets to provide the added octane for mid-grade
  and premium gasolines. These gasoline grades enjoy a considerable retail
  price premium which can be reflected in the price paid for the ethanol. These
  price premiums for ethanol blended mid-grade and premium gasolines may not be
  available to the same extent in the new renewable oxygenate markets,
  particularly for the full amount of ethanol expected to be blended under the
  renewable oxygenate program.
    The analysis examined each element of the renewable oxygenate supply
  process separately. First EPA evaluated which renewable oxygenates would be
  likely to be used to fulfill the program requirements during the early years
  of the program and what volume of oxygenate that represented. Second,
  feedstocks for the production of these oxygenates were examined to determine
  whether sufficient feedstock supplies would be available. Third, EPA examined
  the adequacy of projected production capacity for the dominant oxygenates for
  the first years of the program. Fourth, EPA investigated whether
  transportation and distribution networks were adequate to support the program
  during the initial years. Fifth, EPA examined the projected storage and
  blending capability during this time frame. EPA examined the capability over
  time of each link in the renewable oxygenate production and distribution
  chain to handle the demands of the renewable oxygenate program, and concluded
  that a phase-in of the 30 percent requirement is necessary and that the
  phase-in being promulgated today is an appropriate response to leadtime
  concerns.

  2. Likely Renewable Oxygenates

    Ethanol is likely to be the dominant renewable oxygenate used to meet the
  renewable oxygenate requirements, especially during the initial years of the
  program, since it is the only renewable oxygenate currently produced in large
  quantities. Since ethanol cannot be blended during the summer months to meet
  the requirements of the program, its use will be concentrated during the
  winter months. ETBE, the simplest ether derived from ethanol, also is likely
  to be used in significant quantities since it, unlike ethanol, can be blended
  during the summer months to meet the requirements of the program. As
  discussed below in section III.F.6, however, ETBE production capacity is
  expected to be virtually non-existent in 1995 due to construction and
  permitting time constraints. Its use is expected to increase by 1996 through
  the conversion of existing MTBE facilities so that the requirements of the
  program are met by a combination of ethanol use in the winter and ETBE use
  year-round. Other renewable oxygenates are not expected to be available in
  significant quantities before 1997 given the leadtime required to design and
  construct new renewable production facilities. ETBE use is expected to
  increase further during the summer months once the Phase II RFG standards
  take effect in the year 2000, since ETBE use will make it easier (relative to
  MTBE) for refiners to achieve the more stringent VOC performance standards.

  3. New Renewable Oxygenate Demand

    Before EPA could evaluate the adequacy of the renewable oxygenate supply,
  distribution, and blending capacity, it was necessary to estimate the
  program's demand for renewable oxygenates. The estimate was derived in terms
  of new ethanol demand, since as discussed above only ethanol or ETBE are
  expected to be used in significant quantities during the first few years of
  the program, and since the use of ETBE would not alter the total amount of
  ethanol required by today's rule because the oxygen in ETBE is derived solely
  from ethanol. The ethanol demand created by the program was estimated by
  multiplying the projected 1995 volume of reformulated gasoline covered by the
  Federal RFG program (including the two covered California areas) of 38.7
  billion gallons per year by the volume percent of ethanol (5.76 percent)
  necessary to meet to 2.0 weight percent oxygen requirement in 30 percent of
  RFG. As a result, today's program is estimated to require about 670 million
  gallons of ethanol to meet the full 30 percent requirement. In actual
  practice, refiners may blend greater or lesser amounts of ethanol in any
  individual gallon of RFG, depending on such factors as tax credits and price
  and availability of various oxygenates.
    The actual amount of new ethanol production required by today's rule is
  smaller than 670 million gallons because some ethanol is currently sold in
  areas covered by the RFG program. Based on the monthly reporting by
  Information Resources, Inc. (IRI) for 1993, it appears that as much as 280
  million gallons of ethanol is already being used in areas covered by the
  reformulated gasoline program (State-wide data was weighted based on
  population to reflect ethanol consumption only in the RFG areas within the
  State). Not all of this can be credited toward the renewable oxygenate
  program, however, unless the summertime use is converted to ETBE. Based on
  the IRI data, as much as 180 million gallons of ethanol is currently being
  used during those months of the year in which EPA would expect non-VOC-
  controlled gasoline to be produced (on average September 15 through March
  31). Thus, the amount of additional wintertime ethanol production required to
  meet a 30 percent renewable oxygenate requirement in 1995 would be
  approximately 490 million gallons (390 million gallons in new, year-round
  capacity in later years once ETBE production capacity can be brought on-
  line). A 15 percent phase-in of the program would require approximately 155
  million gallons of additional ethanol production. While this volume of
  ethanol could be met using existing capacity by displacing ethanol from
  existing ethanol markets, EPA believes, for reasons discussed earlier, it is
  desirable to minimize displacing significant amounts of ethanol from existing
  markets.

  4. Feedstock Capacity

    The next step in EPA's analysis was to determine whether sufficient
  feedstocks were available to permit this increase in renewable oxygenate
  production. According to comments received from agricultural interests, corn
  is the feedstock for 90 percent of current ethanol production and is expected
  to provide the vast bulk of the feedstock for new ethanol capacity added in
  the near term. Of the total 8.7 billion bushels of corn produced in an
  average year,17 approximately 360 million bushels (approximately 4 percent of
  average annual corn production) was used to produce an estimated 900 million
  gallons of ethanol. Therefore, the estimated 490 million gallons of new
  ethanol demand resulting from today's rule would increase corn demand by
  approximately 195 million bushels, or about 2 percent. Based on this
  analysis, EPA has concluded that the feedstock demands for this program can
  be satisfied solely with corn without significant difficulty. In addition,
  other feedstocks can be used to produce renewable oxygenates, including waste
  products from farms, dairy operations, bakeries, and the soft drink industry;
  from cellulosic sources such as grasses and fast-growing energy crops, and
  from such sources as municipal solid waste. Based on the diversity and
  immense supply of these potential feedstocks, EPA has concluded that
  feedstock supplies are sufficient to support the requirements of the
  renewable oxygenate program being promulgated today.
    Note 17 According to information provided by John W. McClelland of USDA,
  "Memorandum for Richard Wilson, Director, Office of Mobile Sources, U.S.
  Environmental Protection Agency," June 20, 1994.

  5. Ethanol Supply and Production Capacity

    Current (1993) ethanol operating production capacity nationwide has been
  estimated by DOE to be approximately 1.15 billion gallons. Data from IRI for
  1993 estimates ethanol consumption at roughly 1.25 billion gallons, and EPA
  received comments from an ethanol producer that 1994 ethanol production was
  projected to be 1.25 billion gallons. As a result, current ethanol production
  would be more than sufficient to meet the requirements of today's rulemaking
  as long as no constraints were placed on the volume of ethanol that could be
  diverted from existing markets. However, as discussed above, there are
  several reasons why EPA considers it appropriate to minimize to the extent
  possible diverting ethanol from existing markets to satisfy the renewable
  oxygenate program. As a result, EPA examined the amount of current excess
  ethanol capacity and projected new ethanol capacity to determine the amount
  of renewable oxygenates that would be available to supply the needs of the
  program being promulgated today during the initial years of the program.
    The U.S. Department of Agriculture estimates that the current ethanol
  production capacity is as high as 1.4 billion gallons per year. One commenter
  representing the ethanol industry submitted a list of existing ethanol plants
  and their operational capacity which suggested that current ethanol
  production capacity is also nearly 1.4 billion gallons per year. Based on
  this production capacity information and on the current domestic ethanol
  consumption estimates, it appears that there may be approximately 150 million
  gallons of excess ethanol production capacity (some of which may currently be
  exported) currently available that could be used to supply the requirements
  of the renewable oxygenate program. However, not all of this production could
  be used to supply ethanol for blending during the winter; only approximately
  80 million gallons could be supplied from current excess capacity during the
  winter months.
    In addition to current excess capacity, a considerable amount of new
  capacity is expected to come on-line in the remainder of 1994, 1995, and
  1996, according to information supplied by the Renewable Fuels Association
  and USDA. This information suggests that approximately 305 million gallons
  per year of additional ethanol capacity is currently under construction and
  will become available in 1995. (Additional amounts are possible, but more
  speculative.) Furthermore, plans were being made for another 304 million
  gallons of annual capacity to be brought on line in 1996, though much of that
  apparently depended on the outcome of today's rulemaking. USDA estimated
  similar increases in ethanol capacity over this time period. It should be
  noted that not all of the additional capacity available in 1995 would be
  available at the beginning of the year, and not all of it could be dedicated
  to production only during the winter months as would be required until ETBE
  production capacity comes on-line. A similar situation would occur in 1996.
  After considering these factors, EPA has concluded that approximately 93
  million gallons of additional ethanol production from new capacity will be
  available for blending during the winter months to meet the program
  requirements in 1995, and an additional 157 million gallons to meet the
  program requirements during the winter months in 1996.
    It should be noted that additional ethanol capacity also may become
  available from corn processors, many of whom already have feedstock
  processing facilities in operation and would only need to install the capital
  equipment necessary to ferment the starch and separate the ethanol. Such
  processors may be able to install ethanol production capacity relatively
  quickly. Based on comments received, however, EPA cannot conclude with any
  degree of assurance that such additional capacity will become available.
    Based on the foregoing analysis, EPA believes that as much as 173 million
  gallons of new ethanol production can be made available during the winter
  months to meet 1995 program requirements and 330 million gallons during the
  winter months to meet the 1996 requirements. After taking into consideration
  the 180 million gallons of ethanol currently blended in the RFG markets
  during the winter months, a total of 353 million and 510 million gallons of
  ethanol should be available for blending during the winter months in both
  1995 and 1996, respectively. As shown in the following table, absent a phase-
  in and ETBE production capacity, 317 million gallons of ethanol would have to
  be diverted from existing markets in 1995 and 160 million gallons would have
  to be diverted in 1996.

              Summary of Ethanol Supply/Demand (MM gal) and Need for
                                   Displacement

                                                         1995    1995
                                                         (15%    (No
                                                        Phase-  Phase-
                                                         in)     in)     1996

   New Renewable Oxygenate Ethanol Demand                  335     670      670
   Existing EtOH Demand in RFG Areas During Winter /1/     180     180      180
   Net New Winter Capacity Required                        155     490      490
   Current Winter Excess Capacity                           80      80       80
   1995 New Winter Capacity /2/ /3/                         93      93      164
   1996 New Winter Capacity /2/ /3/                          0       0       89
   Shortfall (Displaced from Existing Markets)                     317  157 /4/

   /1/ Based on IRI estimates.

   /2/ If additional summer production can be stored until the winter, then
   this estimate could be increased slightly.

   /3/ Annual available new capacity is derived from expected capacities of
   ethanol plants under design/construction prorated by their projected start-
   up dates.

   /4/ Will be reduced to the extent ETBE capacity can come online.

    To the extent that existing ethanol storage capacity can be used to store
  ethanol produced during the summer for use in the winter, and to the extent
  that ETBE can be produced from ethanol produced during the summer and be
  blended into summer RFG, the amount of ethanol displaced from existing
  markets would be reduced. Based on comments received by EPA, the amount of
  ethanol storage capacity appears to be approximately 116 million gallons. If
  this storage capacity were devoted to storing summer ethanol for use in
  winter RFG, then ethanol displacements from existing markets would fall to
  201 million gallons in 1995 (with no phase-in) and 41 million gallons in
  1996. As discussed in the next section, EPA does not anticipate that
  significant amounts of ETBE can be available in 1995, though sufficient
  amounts to meet the needs of the program could potentially be available in
  1996. ETBE blended into VOC-controlled RFG receives credit under today's
  rule, so its availability would allow the new summer ethanol production
  capacity to satisfy part of the renewable oxygenate requirement and would
  reduce the displacement of winter ethanol from existing, non-RFG markets.
  Based on this analysis, EPA believes that insufficient renewable oxygenate
  production capacity is likely to be available to supply the 30 percent
  renewables requirement by 1995 without a considerable shift of supply from
  existing markets, but that adequate capacity should exist by 1996.

  6. ETBE Capacity

    ETBE, the simplest ether derived from ethanol, offers several advantages to
  refiners over ethanol or MTBE. Unlike ethanol blends, ETBE blends can be
  shipped through pipelines. ETBE has a higher octane value than MTBE or
  ethanol, which would be valuable to refiners struggling to satisfy octane
  demand while simultaneously reducing high-octane components such as aromatics
  and olefins in order to comply with the RFG toxics and NOx requirements. Like
  MTBE, ETBE does not produce commingling-related increases in RVP levels and
  hence is eligible for credit year-round under today's rule. ETBE also has a
  lower blending RVP than ethanol or MTBE, which in the near term would permit
  refiners who use ETBE to remove less butane to reach a desired RVP level.
  Beginning in the year 2000, ETBE's low blending RVP should be even more
  attractive when the more stringent Phase II performance requirements for RFG
  take effect. Finally, larger amounts of ETBE than MTBE or ethanol are needed
  to satisfy RFG's oxygen requirement, and these larger amounts of ETBE would
  dilute undesirable gasoline properties such as sulfur to a greater extent
  than would the other two oxygenates.
    However, ETBE typically costs more to produce than MTBE or ethanol per unit
  oxygen. Because of these cost disadvantages current ETBE production levels
  are very low. EPA expects ETBE production to grow even without today's rule
  in order to achieve the low RVP levels needed to meet RFG's Phase II VOC
  performance standards. Today's rule will make ETBE production even more
  attractive, since ETBE-blended RFG can receive renewables credit throughout
  the year. However, EPA has concluded that large amounts of additional ETBE
  capacity cannot be expected for 1995. At least one year and perhaps longer is
  expected to be required before significant volumes of ETBE become available.
  According to current ether producers, existing MTBE plants are likely to
  require one to three years to convert to ETBE production. Up to a full year
  is needed to acquire construction permits and complete the requisite
  engineering work. Conversion of the MTBE plant to produce ETBE is estimated
  to require from six months to two years, and several months of trial
  production may be needed before full production of ETBE can commence.
  Furthermore, ETBE production is also dependent on the development of adequate
  ethanol production, unless the ethanol is merely diverted from existing
  markets. Based on this information, EPA does not expect significant amounts
  of ETBE production to be possible until the summer of 1996.
    Furthermore, ether production process licensers also indicated that plant
  conversion to ETBE production could reduce throughput (relative to MTBE
  throughput), depending on the plant and the type of equipment installed. The
  reduction is caused by differing reaction conditions and the different nature
  of the reactants involved. Since considerable MTBE capacity would have to be
  converted to ETBE production to satisfy the full 30 percent renewables
  requirement, EPA is concerned that this loss of throughput might create
  shortages of oxygenates during the first year of the RFG program. EPA
  believes that phasing in the renewables requirement will reduce the risk of
  such shortages and allow a more orderly phase-in of ethanol and ETBE
  production capacity.

  7. Transportation

    EPA has also analyzed whether the additional ethanol produced under today's
  rule can be transported from where it would be produced to where it would be
  consumed. According to the Army Corps of Engineers (Corps), water-based
  transportation is the most economical method of shipping ethanol both within
  the Midwest and from the Midwest to East Coast and West Coast markets. For
  plants and markets without access to water-based transportation, railway
  transportation is the most likely transportation mode. EPA has analyzed each
  piece of the transportation network, specifically: (1) The river barge
  capacity on the Mississippi River, (2) the ship or ocean barge capacity
  between the Gulf of Mexico and East and West Coast markets, and (3) the
  transportation capacity for ethanol movement from ports to retail markets.
    Based on a 1992 report by the Army Corps of Engineers regarding barge
  traffic on U.S rivers, it appears that transportation by barge of all of the
  new ethanol production resulting from today's renewable oxygenates program
  would represent less than 1 percent of U.S. river barge capacity. As a
  result, EPA has concluded that today's program is unlikely to cause
  noticeable changes in shipping patterns or shipping prices. Based on current
  barge shipping prices, the cost for shipping ethanol from the Midwest to the
  Gulf of Mexico is estimated to cost 4-5 cents per gallon.
    The barges used on inland waterways cannot be used on the open ocean. Hence
  ethanol destined for East Coast or West Coast markets must be transferred to
  ocean-going freighters or tankers. Nevertheless, based on conversations with
  New Orleans port officials, current shipping capacity should be more than
  adequate to supply the shipping requirements demanded by today's rule.
  Transportation from the Gulf to either Coast is expected to cost 5-7 cents
  per gallon.
    Not all the ethanol shipped from the Midwest to other markets would have to
  be shipped by ocean-going vessels, however, since some of the ethanol could
  be used in ether plants located in the Gulf area to produce ETBE, which then
  would be blended into gasoline and shipped by pipeline to markets in Texas,
  the Midwest, or the East Coast. Pipelines are considered the most economical
  method of transporting liquids, and the costs of shipping ETBE to RFG markets
  by pipeline would be comparable to the costs of shipping MTBE to such
  markets.
    Furthermore, the averaging and trading provisions incorporated into today's
  action can be used to limit to some extent the amount of oxygenate
  transportation that is necessary. As much as 12 percentage points out of the
  total 30% renewable oxygenate requirement could theoretically be met with
  ethanol blended in the Midwest RFG markets where transportation constraints
  are limited, and the credits traded to refiners marketing RFG in more distant
  markets.
    Given the foregoing analysis (which is discussed more fully in the RIA),
  EPA does not believe that transportation presents a bottleneck to
  implementation of today's rule, although there are cost implications.
  Furthermore, EPA did not receive any comments suggesting that transportation
  would present implementation problems for the renewable oxygenate rule.

  8. Storage and Blending Capacity

    Given sufficient production of ethanol and adequate transportation from the
  point of production to their final markets, the remaining lead-time issue is
  that associated with adequate ethanol storage and blending capacity at the
  terminals where it is blended with gasoline. When the ethanol is offloaded at
  its end-use market, it must be stored in large terminal storage tanks. The
  capacity of these tanks must be sufficient to offload the entire shipment.
  Once offloaded, the ethanol then must be blended with gasoline. Some
  terminals splash-blend ethanol with essentially no additional equipment or
  facilities, while others use more sophisticated blending equipment. EPA did
  not receive comments of a nature sufficient to evaluate the adequacy or
  inadequacy of current ethanol storage and blending facilities. In order to
  determine whether adequate storage and blending capacity to support the
  renewable oxygenates program exists, EPA estimated the storage and blending
  capacity being used to meet the current demand for ethanol in the RFG areas
  and compared that with the storage and blending capacity that would be
  necessary to meet the program requirements. In order to estimate the current
  storage and blending capacity, EPA examined the peak monthly ethanol blending
  rates reported by IRI for each RFG market during 1993. EPA extrapolated this
  peak blending rate over the entire non-VOC control season to estimate the
  current blending capacity available to support the renewable oxygenate
  program. The results of this analysis are shown in the following table.

                  Ethanol Storage and Blending Capacity in RFG
                                     Markets

                                             Winter
                                            Ethanol     % of
                                     Peak   Blending  total RFG
                                    Market  Capacity    that
                                    Share     (MM     contains
                  State (RFG areas   /1/     gals)    renewable
                       only)         /4/    /2/ /3/     O2/5/

                  Illinois/Indiana      36        59        2.6
                  Kentucky              16         9        0.4
                  Wisconsin             13        18        0.8
                   Midwest Total                  86        3.8

                  Connecticut           13        10        0.5
                  Delaware              36         7        0.3
                  D.C.                  36         5        0.2
                  Maryland               3         4        0.2
                  New Jersey             8        10        0.5
                  New York              29        60        2.7
                  Pennsylvania          19        38        1.7
                  Virginia              17        19        0.9
                   Northeast Total               153        7.0

                  Texas                  4         9        0.4
                  California             5        20        0.9
                     Total                       268       12.1

                  /1/ Peak market share for ethanol blended in
                  any month in 1993 based on IRI data (assuming
                  ethanol blended at 10 vol%).

                  /2/ Wintertime ethanol only and no ETBE
                  capacity.

                  /3/ Peak ethanol volume blended in any month
                  in 1993 (based on IRI data) extrapolated over
                  the winter season, expressed as millions of
                  gallons.

                  /4/ Assumes ethanol blended at 3.5 wt%
                  oxygen.

                  /5/ Phase-in would require total of 15% in
                  1995 and 30% in 1996; percentages are based
                  on proration of ethanol content to 2.0 wt%
                  oxygen.

    Based on this analysis, adequate tankage and blending equipment exists for
  roughly 12 percent of the oxygenate required by the reformulated gasoline
  program to be supplied by ethanol during the winter months only. This is well
  short of the total 30 percent required by the program, and even short of a 15
  percent phase-in level. In order to implement the program smoothly, this
  shortfall will have to be made up by one of three means: first, pass a
  greater volume of ethanol through existing tankage and blending equipment;
  second, construct new ethanol storage and blending capacity at terminals; or
  third, supplement ethanol blended at terminals with ETBE blended at
  refineries.
    It is reasonable to assume that some additional ethanol could be blended at
  the existing facilities by increasing the throughput of storage tanks and
  blending equipment, particularly in the Midwest where the close proximity to
  ethanol production facilities allows for greater flexibility in receiving and
  blending ethanol shipments. EPA does not believe it unreasonable to assume
  that ethanol throughput could be increased by 25 percent or more in 1995,
  since it is unlikely that existing facilities were all designed to operate at
  their current peak levels with no provisions made for market growth. To the
  extent throughput can be increased by even more than 25 percent in some
  markets it could be used to offset (through credit trading) any shortfall in
  other markets. As a result, a phase-in level of 15 percent should be
  achievable in 1995 even without expanding ethanol storage and blending
  facilities. Even if this were not the case, it is reasonable to assume that
  some additional storage and blending capacity beyond that available in 1993
  may have been planned to be available in 1995 to keep up with the planned
  increases discussed above in ethanol production by 1995.
    It is not reasonable, however, to assume that existing facilities could
  increase their throughput by the 150 percent necessary to achieve the full 30
  percent requirement of today's program. Furthermore, as discussed above, no
  appreciable ETBE production capacity is expected to be available until the
  summer of 1996. As a result, the only way to meet the full 30 percent
  requirement of the program in 1995 would be through the addition of new
  ethanol storage and blending capacity. Current estimates of the time
  necessary to obtain permits, construct new storage and blending facilities,
  and make them fully operational vary, but range between approximately 6 and
  18 months. Thus, sufficient time would not be available to bring on-line
  additional ethanol storage and blending facilities for use until the fall of
  1995. The expanded ethanol blending capacity available by this time is
  unlikely to be sufficient to supply the full 30 percent requirement over the
  course of the entire year. Even if it were sufficient, it would not have been
  available for the entire year and hence would not be sufficient to satisfy
  the 30 percent requirement. In order to meet the full 30 percent requirement
  in 1995, storage and blending capacity in excess of what would be needed in
  subsequent years would have to be built in 1995. While it is very difficult
  to predict specific market responses, especially given the compliance
  flexibilities built into the program, it does not appear that sufficient
  ethanol storage and blending capacity is likely to exist for 1995 without
  either a phase-in of the program or extraordinary measures to provide
  additional blending capacity (e.g., tanker truck shipments from terminals
  outside the RFG areas).
    The situation is different for 1996, however. It may be possible by 1996
  for a considerable amount of ETBE to be blended at the refineries during both
  summer and winter months. Since refinery-blended ETBE would not require
  specialized blending facilities at terminals, increased ETBE use might reduce
  considerably the 150% increase in ethanol blending capacity that would
  otherwise be necessary. Furthermore, the additional time provided by a phase-
  in would allow for the construction of additional ethanol storage and
  blending facilities, most of which could be in place at the beginning of the
  annual averaging program in January of 1996. Much of this additional ethanol
  blending capacity is likely to be added in the Midwest to take advantage of
  lower ethanol transportation costs and State tax exemptions. However, even if
  every gallon of RFG in the Midwest contained 10 volume percent ethanol, only
  40% of the renewable oxygenates required by the program could be met by
  Midwest ethanol usage in RFG. As a result, until a significant amount of ETBE
  production comes on-line, ethanol storage and blending capacity in RFG
  markets outside the Midwest will have to expand by as much as 100 percent
  (i.e., capacity would have to double).

  9. Summary and Conclusions

    Based on the foregoing analyses, EPA believes that given the compliance
  flexibilities built into the program it is feasible for sufficient
  feedstocks, production capacity, transportation capacity, and blending
  capacity to be available to meet the full 30 percent renewables requirement
  by 1996. However, EPA is concerned that neither supply nor blending capacity
  will be adequate in 1995 to satisfy the full 30 percent requirement. While a
  supply shortfall could be filled by diverting ethanol from its current
  markets to RFG markets, such diversions would be costly and would not meet
  any of the objectives of today's rule, as has been discussed earlier in this
  notice. Furthermore, even if such diversions were to occur, EPA is concerned
  that insufficient blending capacity would be in place in 1995 to blend the
  requisite volumes of ethanol into non-VOC-controlled RFG. The risks of this
  are significant and the consequences could be dramatic with shortages, price
  spikes, and other market disruptions. For these reasons, EPA has decided that
  a phase-in of the 30 percent renewables requirement is both necessary and
  prudent. During the first year of the program (December 1, 1994 through
  December 31, 1995), 15 percent of the RFG program's minimum 2.0 weight
  percent oxygen requirement must be met by renewable oxygenates. In 1996 and
  subsequent years, the minimum renewables content will increase to 30 percent
  of the RFG program's minimum oxygen content. Even with such a phase-in, it is
  still likely that some shifting will occur from current markets into the
  markets created by today's program as a result of local economic conditions
  and logistical considerations. However, these shifts are likely to be small
  relative to the overall size of the renewable oxygenate program and would not
  materially alter the benefits of today's rule.

  G. Shoulder Season/Non-commingling Season

  1. Summary of the Issue and Comments

    EPA received comment on the ozone impacts of the renewable oxygenate
  proposal, particularly during the "shoulder season" periods of April 1
  through May 31 and September 16 through October 31 when the reformulated
  gasoline high ozone period is not in effect. During these periods, VOC-
  controlled RFG is not required at the retail level. Commenters expressed
  concern that the likely increase in ethanol market share in non-VOC-
  controlled RFG would increase VOC emissions both directly (since the RVP
  increase from splash-blended ethanol would not be constrained by vapor
  pressure limits in non-VOC-controlled RFG) and indirectly (since greater
  commingling effects would occur as the market share for ethanol-blended RFG
  increases). Commenters representing state air quality regulators (NESCAUM,
  STAPPA/ALAPCO, and CARB), argued that the net result of such increases in
  average RVP levels during the shoulder season would be increased VOC
  emissions and higher ozone levels, especially in the Northeast and
  California. NESCAUM suggested that EPA extend the season in which volatility-
  increasing alcohols would not receive renewable credit to April 1st through
  October 31st in order to eliminate the risk of any potential ozone increases.
    Other commenters such as the Clean Fuels Development Coalition and the
  Ethanol Ad-Hoc Committee argued that the use of ethanol-blended RFGs during
  the shoulder season would not cause additional ozone exceedances for two
  reasons. First, the spillover of VOC-controlled RFG, primarily ether-
  containing RFG, would reduce shoulder season RVP levels below current levels.
  Second, they believed other pollution reduction programs being implemented
  over the next several years would reduce ozone precursor emissions during the
  shoulder season. The combined effect would reduce such precursors by more
  than any increases due to increased ethanol use, thereby negating any
  detrimental environmental effects.

  2. EPA Analysis of the Renewable Program's Shoulder Season Emission Impact

    Although EPA agrees that increased ethanol use in non-VOC-controlled
  gasoline is likely, the Agency's analysis indicates that any detrimental
  environmental effects should be negligible. The reformulated gasoline program
  requires VOC-controlled fuel at the terminal from May 1-September 15.
  Refiners have indicated that they would begin shipping such fuel as early as
  March 1 in order to assure that low-volume terminals and retail stations have
  fully converted to VOC-controlled RFG by May 1 and June 1, respectively, as
  required by the RFG program.
    Since most fuel is sold at high-turnover retail outlets, EPA's analysis
  shows that many vehicles will begin operating on VOC-controlled RFG during
  April. Also, most vehicles will continue to operate on VOC-controlled RFG
  until late September or early October, since the fuel distribution system
  requires some time to replace summer fuel with winter fuel after terminals
  are permitted to switch to winter fuel on September 16. Experience with the
  federal volatility program supports these conclusions, as discussed in the
  RIA.
    EPA concludes that while increased ethanol use is likely in RFG sold from
  mid-October through late March, increased ethanol use resulting from this
  program will be essentially zero in May and will be minimal in April, late
  September, and early October. Furthermore, ethanol's commingling effect
  changes relatively little at ethanol market shares between 30 and 70 percent
  and decreases at higher market shares. As discussed in section III.F, a
  number of States in the Midwest and Northeast which will participate in the
  RFG program already have peak ethanol market shares approaching or even above
  30 percent. In addition, experience with the winter oxygenated fuels program
  indicates that ethanol blends may well have represented 30 percent or more of
  the winter RFG demand in some RFG markets without today's rule (including
  some midwestern and northeastern RFG markets), suggesting that any increase
  in ethanol use which might occur during the shoulder season would cause
  little if any increase in commingling effects. Both of these factors suggest
  that emission impacts resulting from ethanol's vapor pressure boost and
  commingling effects during the shoulder season will be less than otherwise
  anticipated. Since ETBE use in summer RFG would likely reduce ethanol use in
  winter RFG, the extent of any ethanol-related VOC increase during the
  shoulder season is likely to decrease as ETBE capacity and usage increase.
  Finally, it should be noted that VOC emissions are unconstrained during the
  non-VOC control season under both the RFG and volatility control programs
  since such emissions are not associated with ozone exceedances because they
  do not occur outside the summer months in most of the country. Thus, today's
  rule is unlikely to result in increased VOC emissions during the period when
  such emissions are controlled under current EPA fuel programs.

  3. EPA Analysis of the Extent of the Shoulder Season Air Quality Problem

    In examining the shoulder season issue, EPA evaluated the extent of the air
  quality problem during the shoulder season. EPA has found that ozone
  violations outside the May 1 to September 15 period (the period during which
  all gasoline at terminals, and much of the gasoline at retail stations, is
  expected to be VOC-controlled) are minimal for those RFG areas outside of
  California and Texas. Ozone monitor exceedances during September 16-October
  31 and the month of April in the Northeast comprised fewer than 4 percent of
  all such exceedances recorded in RFG areas in 1986-1988. More recent 1990-
  1992 data for the Northeast confirm the earlier results: less than 2 percent
  of all ozone monitor exceedances recorded in RFG areas occurred in the
  Northeast in April, late September, and October (and none in other winter
  months). Further examination of the 1990-1992 data revealed that the
  documented ozone violations involve just two distinct ozone episodes. These
  episodes (one in late April and one in mid-September) happened very near the
  time of year when much of the RFG sold at retail stations is expected to be
  VOC-controlled. The various control measures that apply year-round that will
  be implemented to attain the ozone standard on the highest exceedance days
  should reduce ozone concentrations below the National ambient air quality
  standard for ozone in the shoulder season. Furthermore, given the analysis of
  fuel turnover discussed previously, EPA believes that the renewable oxygenate
  program is unlikely to contribute to increased ozone exceedances or
  additional high ozone episodes in the Northeast.
    However, the 1990-1992 data also indicate that a substantial number of
  ozone violations occurred during the shoulder seasons in the reformulated
  gasoline areas in California and Texas. Violations appear to occur throughout
  the year in both states. However, the state of California has imposed
  additional fuel regulations within its borders to address air quality
  problems, and more stringent volatility requirements go into effect
  throughout the state of California in 1996. These controls will already cover
  the April-October time frame in southern California, and the state of
  California can extend this if they believe additional volatility controls
  during the period are appropriate.
    Although Texas did not submit comments to the Agency on this issue, the
  possibility does exist that the renewable oxygenate program may increase VOC
  emissions outside the high ozone season in Houston and Dallas-Fort Worth. To
  address this problem, EPA has considered further restricting the times during
  which ethanol would receive renewables credit in this rule. However, the
  year-round nature of Texas' current ozone exceedances could make such a
  solution impractical. Furthermore, EPA's analysis of ethanol production and
  blending capacity indicates that further restrictions on the times when
  ethanol would receive renewables credit could exacerbate the supply,
  distribution, and blending concerns for 1995 and 1996 discussed in section
  III.F. As a result, EPA does not believe at this time that revising the
  design of a national program (through such means as extending the period when
  alcohols do not receive credit toward the renewables requirement on a
  nationwide basis) is appropriate. Furthermore, EPA believes that revising the
  design of the program on less than a national basis (e.g., just for Texas
  and/or California), would be inappropriate at this point in time without
  taking into consideration the unique requirements within each State.

  4. Provisions of Today's Rule Regarding the Shoulder Season

    As discussed above, EPA does not expect today's rule to result in increased
  ozone exceedances during the shoulder season. However, EPA recognizes that
  States may wish to further restrict the times during which ethanol blended
  into RFG would receive credit toward the renewable oxygenate requirement in
  order to address their unique air quality problems. As a result, EPA will
  extend the non-commingling season, during which oxygenates such as ethanol
  which demonstrate commingling-related increases in RVP will not receive
  credit toward the renewable oxygenate requirement, to any or all covered
  areas within a State at the State's request, subject to certain limitations
  as discussed below.
    California is not subject to the preemption of state and local fuel
  controls under section 211(c)(4) of the Act and, therefore, has broad
  flexibility in adopting its own state fuel control programs. While other
  states are subject to these provisions, they can also implement their own
  fuel control programs if they are approved as part of their state
  implementation plan (SIP) as being necessary to attain the national ambient
  air quality standards. As a result, the states could take action on their own
  without petitioning EPA to modify its program. However, this petition
  provision allows the states the additional flexibility of having the federal
  fuel control program modified (in this limited manner) to adjust to their
  unique air quality needs.
    The request for extension of the non-commingling season must be signed by
  the Governor of the State for which the extension is to apply. The petition
  must include evidence demonstrating that each of four criteria have been met.
  First, the petition must include data collected subsequent to the
  implementation of the renewable oxygenate program showing that an increase in
  oxygenates which produce commingling-related RVP increases (such as ethanol)
  has occurred in the fuel sold in the petitioning State during the shoulder
  season, and that this increase is likely to continue. Second, the petition
  must include evidence demonstrating a pattern of violations during the
  shoulder season of the ozone National Ambient Air Quality Standards over the
  previous three years, based on ozone monitoring data, which would warrant the
  extension being requested. In effect, this second criterion would require
  that the pattern of ozone violations extend into the shoulder season. Third,
  the petition must include an analysis demonstrating that the pattern of ozone
  violations is likely to continue even with implementation of all other ozone
  air quality control measures and programs currently planned by the State.
  Fourth, the petition must demonstrate that its findings were made by the
  Governor through a process that was responsive to public input and that
  included public notice and an opportunity for a public hearing. These
  provisions are intended to provide States with air quality concerns the
  ability to prevent any direct or indirect increase in VOC emissions during
  the non-summer season, while simultaneously providing assurance that any such
  extension is granted only for those areas where restrictions on blending
  ethanol and other commingling oxygenates may help address a genuine air
  quality problem.
    Once a valid petition is received satisfying the noted criteria, EPA will
  publish a notice in the Federal Register and tentatively establish the non-
  commingling season as requested by the governor and the effective date for
  the new restrictions on blending of commingling oxygenates. These
  restrictions will take effect on the first day of the next complete non-
  commingling season beginning one full year after the petition is received. If
  a petition is received within three months of the publication of the notice
  in the Federal Register which demonstrates to the satisfaction of the
  Administrator either that the four criteria were not met or that the change
  to the non-commingling season is not feasible by the effective date in the
  notice, EPA retains the right to either reject the State's request for an
  extension or extend the effective date by up to two additional years, based
  on analysis of the information contained in both petitions (the State
  petition and the opposing petition). For example, a satisfactory request to
  extend the non-commingling season to encompass April which is received by the
  Administrator on April 20 of, say, 1997 would take effect on April 1, 1999 if
  no opposing petitions were submitted.
    Any changes in the duration of the non-commingling season as a result of
  these provisions will be enforced at the terminal, as discussed in section
  IV. It should be noted that the criteria discussed above imply that the non-
  commingling season will not be extended prior to 1997 for any State.

  H. Program Benefits

    The reformulated gasoline program promulgated December 15, 1993 will
  increase fossil energy use due to the need to reduce RVP, the increased
  production and use of oxygenates, and fuel economy losses resulting from fuel
  reformulation (as discussed in 59 FR 7716, February 16, 1994, and the
  Regulatory Impact Analysis found in Public Docket No. A-92-12). As explained
  below, the use of renewable oxygenates in reformulated gasoline under the
  renewable oxygenate program being promulgated today should reduce the fossil
  energy used by the reformulated gasoline program, particularly in the long
  term. Today's renewable oxygenate program also helps assure that the RFG
  program is compatible with long-running national policies and programs to
  obtain the benefits associated with the use of renewable fuels and could,
  according to the Renewable Fuels Association, result in decreased imports of
  MTBE. Furthermore, the renewable oxygenate requirement will help assure that
  the environmental benefits of the reformulated gasoline program will be
  achieved and has the potential to enhance those benefits, as discussed more
  fully below. And finally, the renewable oxygenate program offers the
  potential for reduced greenhouse gas emissions in the future as more
  efficient renewable oxygenate production technologies are introduced.

  1. Energy Benefits

    The energy benefits of the renewable oxygenate program are strongly
  dependent on the oxygenates used and the timeframe considered. Technical and
  economic factors suggest that in the early years of the program, the
  renewable oxygenate requirement will be met primarily with ethanol. According
  to a study prepared by the Department of Energy,18 if the 30 percent
  renewables requirement is met by either using ethanol produced in current-
  technology ethanol plants in winter RFG, or ETBE in summer RFG, the overall
  fossil energy consumed in RFG production and use would be smaller than would
  be the case if nonrenewable MTBE (the other oxygenate currently expected to
  capture a large share of the RFG oxygenate market) were the only oxygenate
  used in RFG.
    Note 18 "Analysis Memorandum: Energy Requirements and CO2-Equivalent
  Emissions of RFG," prepared by Margaret Singh, Argonne National Laboratory,
  for Barry McNutt, U.S. Department of Energy, June 6, 1994 and March 17, 1994
  (draft). Other comments and studies were also provided to EPA claiming vastly
  different energy and global warming impacts than the DOE report. However,
  these other comments tended to focus on comparisons of ethanol and ETBE-
  blended RFG with conventional gasoline, instead of focusing on comparisons of
  ethanol and ETBE-blended RFG with MTBE-blended RFG. As a result, the DOE
  analysis contains the most relevant information regarding the impact of
  today's rule on fossil energy consumption and global warming emissions.

    The renewable oxygenate program will also help to diversify the country's
  transportation energy supply away from fossil energy (predominantly oil and
  natural gas) towards renewable energy by stimulating production of renewable
  fuels such as ethanol and renewable methanol. This program will have a large
  impact on the renewable energy industry in general and the ethanol industry
  in particular because the amounts of renewable fuels involved are large
  relative to historical production levels.
    The energy benefits of this program become more pronounced in later years.
  Improvements in the energy efficiency of ethanol production, achieved through
  such means as the use of cogeneration or waste products to provide process
  energy, will further reduce the fossil energy required to produce ethanol.
  Additional gains can be achieved by reducing energy consumption and
  fertilizer use in corn farming through changes in farming practices, using
  more energy-efficient equipment, increasing per-acre crop yields, and
  decreasing fertilizer use. Comments submitted by the Department of
  Agriculture and others, as well as previous studies by DOE and EPA cited in
  the proposal, indicate that as new feedstocks for ethanol such as cellulose
  are commercialized, and as renewable methanol production becomes viable, the
  fossil energy benefits of this program would increase substantially relative
  to nonrenewable MTBE use. By providing a secure minimum market for renewable
  oxygenates, today's program will help provide the certainty needed to
  encourage private investments in modern, high-efficiency agricultural
  practices and renewable oxygenate production technology.

  2. Environmental Benefits

    a. Summer Ozone-Related Benefits. In addition to the energy benefits cited
  above, EPA believes this program has the potential to provide environmental
  benefits in the near term, with the potential for even greater environmental
  benefits in the future. These potential benefits stem from the incentives
  this program creates for the use of ETBE in summer RFG. Short-term
  limitations in ETBE capacity suggest that most of the near-term program
  requirements will be met through the use of ethanol blended into winter RFG.
  In the short term, summer RFG will not be affected by the program except to
  the extent that (1) renewable MTBE is substituted for nonrenewable MTBE, and
  (2) small amounts of ETBE capacity become available. Replacing nonrenewable
  MTBE with renewable MTBE would not alter the emission benefits of the RFG
  program. However, ETBE use helps assure that the VOC emission reductions
  sought by the RFG program are achieved or exceeded in-use. Since ETBE
  production consumes ethanol, ETBE use in summer RFG is likely to reduce
  direct ethanol use in summer RFG. (Even though ethanol used in summer RFG
  would not receive credit toward the 30% renewables requirement, such use is
  still permitted under the RFG program.) Ethanol's commingling effect
  discussed in section I tends to increase VOC emissions, so conversion of
  summer ethanol to ETBE (which does not have a commingling effect) should
  reduce VOC emissions.
    Replacing summer ethanol with ETBE may yield other benefits as well. ETBE-
  blended fuels with a given Reid vapor pressure (RVP) produce less vapor (and
  hence smaller nonexhaust VOC emissions) when heated above 100 degrees
  Fahrenheit than do ethanol fuels with the same RVP. A large fraction of
  summer VOC emissions are generated when gasoline is heated beyond 100 degrees
  Fahrenheit, so replacing ethanol or MTBE with ETBE in summer reformulated
  gasolines may yield additional VOC emission reductions. These reductions,
  which are related to the front-end distillation properties of different
  oxygenated fuel blends, have not been included in EPA's Simple or Complex
  Models for reformulated gasoline since sufficient data to quantify accurately
  the size of these reductions is not yet available. However, sufficient data
  is available to confirm expectations based on scientific theory that such
  reductions would occur.
    The size of the commingling and distillation benefits resulting from
  substitution of ETBE for ethanol in summer RFG depends on the market share of
  ethanol-blended gasolines in each market. As discussed above, EPA cannot
  quantify such benefits with certainty; however, the Agency estimates that if
  a 30 percent market share for ethanol blends in summer RFG were replaced
  entirely by ETBE blends, total VOC emissions could be reduced by as much as 5
  percent beyond the reductions that would have occurred without changes in the
  market share for ethanol blends. Thus, by encouraging the conversion of
  summer ethanol into ETBE, the renewable oxygenate requirement will help
  assure that the RFG program achieves the maximum possible VOC reduction.
    b. Shoulder Season Environmental Impacts. EPA received comments raising the
  concern that the use of ethanol in the "shoulder season" (the months
  bordering the high-ozone season) could lead to ozone violations in certain
  areas. The comments raise two separate mechanisms by which ethanol use could
  increase emissions of ozone precursors. First, ethanol addition to gasoline
  causes fuel volatility to increase by approximately 1 psi, and during the
  shoulder season this increase is not constrained by the RFG program. Second,
  ethanol-blended fuels can produce emission increases due to the commingling
  and distillation effects described in the preceding section.
    EPA has considered the shoulder season issue in detail and has concluded
  that the emission reductions anticipated as a result of the RFG program
  should in most cases more than offset any emission increases due to the
  increased use of ethanol in the shoulder season. The basis for this
  conclusion is presented in section III.G of this notice and is discussed in
  detail in the RIA. Nevertheless, EPA has decided to allow States to petition
  the Administrator to extend the season during which ethanol blended into
  gasoline would not receive credit toward today's rule. The provisions
  governing the petition process are described in detail in sections III.B and
  III.G of this notice.
    c. Global Warming Benefits. In addition to the potential to reduce summer
  VOC emissions, the proposal for this rule stated that the renewable oxygenate
  requirement has the potential to reduce emissions of carbon dioxide (and
  possibly other greenhouse gases) resulting from the production and use of
  reformulated gasolines. However, the study by the Department of Energy cited
  previously indicates that with current technology, the use of renewable
  oxygenates leads to similar carbon dioxide-equivalent emissions (global
  warming potential of all emissions expressed as an equivalent mass of CO2
  emissions) as those resulting from the use of nonrenewable MTBE. Testimony
  from the Oak Ridge National Laboratory on behalf of the National Corn Growers
  Association given at the January 14, 1994 public hearing on this rule also
  indicated that the use of renewable oxygenates (ethanol in particular) would
  have no impact on, and in some cases could lead to a reduction in, the
  greenhouse gas emissions associated with the use of gasoline. Overall,
  current technologies for ethanol production and use appear to have at best
  minimal benefits relative to nonrenewable MTBE production and use.
    But as noted by EPA in the proposal and as supported by comments received
  from the Department of Agriculture (see sections II and VI of this notice)
  and others, the use of new feedstocks (particularly agricultural and
  municipal waste products) and new, more efficient production technologies is
  likely to result in reduced emissions of CO2 related to fuel ethanol use. In
  addition, improved farming techniques can reduce emissions of other
  greenhouse gases, particularly N2O. EPA expects that expanding the market for
  renewable oxygenates such as ethanol will accelerate the introduction of more
  efficient feedstock and oxygenate production technologies. Improved
  efficiencies in these processes would result in reduced emissions of CO2 and
  other greenhouse gases. Hence, EPA believes that while the renewable
  oxygenate program may not provide global warming benefits currently, it will
  help stimulate the implementation of more efficient agricultural and
  oxygenate production practices, leading to reduced emissions of greenhouse
  gases than would occur with nonrenewable oxygenates.

  IV. Enforcement

  A. Overview of Enforcement Scheme

  1. General Requirements

    The enforcement scheme for the renewable oxygenate requirements is similar
  to that used for the other reformulated gasoline requirements. The renewable
  oxygenate average standard applies to importers, and to refiners separately
  for each refinery,19 and has a calendar year averaging period.20 No per-
  gallon standard is included. Renewable oxygen credits may be created by any
  refiner who uses more renewable oxygenate than is required, and renewable
  oxygen credits could be used by any refiner to achieve compliance with this
  standard. The conditions and requirements for credit creation, transfer and
  use that would apply to renewable oxygen credits are the same as the
  conditions and requirements that apply under reformulated gasoline for
  benzene and oxygen credits.
    Note 19 The remainder of this preamble section refers to refiners and
  importers collectively as refiners, but all references to refiners apply
  equally to importers unless otherwise noted. Note that downstream oxygenate
  blenders would not be not subject to the renewable oxygenate requirements.
    Note 20 Reformulated gasoline produced during 1994 for use in 1995 will be
  averaged with gasoline produced in 1995 under the reformulated gasoline
  regulations. This approach to averaging of gasoline produced during 1994
  would be followed for renewable oxygenate averaging, creating an averaging
  period that is longer than one year for 1994-1995 only.

    The renewable oxygenate standard will be subject to a phase-in schedule.
  Under Sec. 80.83(b)(1), reformulated gasoline and reformulated gasoline
  blendstock for oxygenate blending (RBOB), on average, must have an oxygen
  content from renewable oxygenate that is equal to or greater than 0.30 weight
  percent from December 1, 1994 through December 31, 1995. The 0.60 weight
  percent standard shall apply beginning on January 1, 1996.
    The renewable oxygenate regulation adds two types of RBOB that were not
  included previously in the reformulated gasoline regulation. These two
  generic RBOB types are "any renewable oxygenate," and "renewable ether only"
  RBOB. A third type of RBOB, "non VOC controlled renewable ether only" RBOB
  has also been added and is appropriately used in those areas which have been
  granted extended non-commingling seasons (see "D. Shoulder Season," below).
  The proposed renewable oxygenate rule allowed refiners to take credit for
  downstream blending of renewable oxygenate only if a contractual relationship
  between blender and refiner exists and if the refiner conducted a quality
  oversight and sampling program. EPA received several comments from parties
  who felt that the renewable oxygenate regulation could contain more
  flexibility. EPA agrees with these comments and adopted the approach
  described in the following paragraphs.
    Refiners are responsible for meeting the renewable oxygen standard for
  reformulated gasoline and RBOB and have two options for including renewable
  oxygenate in the compliance calculations required by Sec. 80.83(d). Under the
  first option, a refiner may claim credit for downstream renewable oxygenate
  blending only if there is a contractual relationship between the refiner and
  blender and the refiner carries out a suitable oversight program over the
  blender. The requirements for a downstream oxygenate blending oversight
  program are the same as those contained in Secs. 80.69 (a) (5) through (7) of
  the reformulated gasoline regulations. Among other requirements, the refiner
  must have a contractual relationship with the oxygenate blender and must
  comply with sampling and testing requirements.
    Under the second option, a refiner may assume that 2.0 weight percent
  oxygen from ethanol is blended with "any renewable oxygenate" RBOB. For
  "renewable ether only" RBOB, the refiner may assume that ETBE resulting in
  2.0 oxygen by weight is to be blended. EPA has chosen the 2.0 weight percent
  assumption because it is consistent with the final reformulated gasoline RBOB
  provisions at Sec. 80.69(D). Additionally, a refiner may chose to produce
  "any renewable oxygenate" RBOB in lieu of "any oxygenate" RBOB for blending
  with ethanol, effectively reducing the number of RBOBs it produces to three
  types.
    Under the final reformulated gasoline regulation, downstream blenders are
  prohibited from violating the assumptions/instructions for RBOB used by
  refiners. Blenders, although not responsible for compliance with the
  renewable oxygenate mandate, are still responsible for adding appropriate
  oxygenate of the type specified in the RBOB transfer documentation under the
  final renewable oxygenate regulations. Under Sec. 80.83(c)(2)(i)-(ii), no
  person may combine any oxygenate with "any renewable oxygenate" RBOB, "non-
  VOC controlled renewable ether only" RBOB, "renewable ether only" RBOB unless
  the oxygenate meets the "renewable oxygenate" definition. The "renewable
  oxygenate" definition is discussed in greater detail in section III of this
  preamble.
    Sections 80.83 (d) and (e) specify compliance calculations and conditions
  for the creation and transfer of credits. These criteria for creation of
  credits are the same as those specified in Secs. 80.67(h)(1)(i) through (iv)
  and Secs. 80.67(h) (2) and (3) of the reformulated gasoline regulations.
    The renewable oxygenate rule includes recordkeeping requirements, specified
  in Sec. 80.83(f). Refiners are required to maintain records demonstrating the
  renewable nature, volume, type, and purity of the oxygenate used and product
  transfer documentation for all renewable oxygenate, reformulated gasoline, or
  RBOB for which the refiner is the transferor or transferee. These same
  recordkeeping requirements also apply to oxygenate blenders who blend
  oxygenate with RBOB designated as "any renewable oxygenate," "non-VOC
  controlled renewable ether only" or "renewable ether only." The records
  required by Sec. 80.83(f) must be retained for a period of five years and
  must be delivered to the Administrator or the Administrator's designated
  representative upon request.
    In today's final rule, EPA is requiring that refiners maintain records
  showing the renewable nature of all oxygenates. Under the proposed rule,
  records demonstrating the renewable nature of renewable ethanol were not
  required. However, today's final rule seeks to ensure that all oxygenates
  claimed as renewable do, in fact, come from renewable sources.
    Section 80.83(g) deals with reporting requirements. All refiners are
  required to submit reports related to compliance with the renewable oxygenate
  standard for reformulated gasoline, compliance calculations for the renewable
  oxygenate standard, and the transfer of renewable oxygen credits. These
  renewable oxygenate reports go beyond the reporting requirements included in
  the reformulated gasoline final rule issued in December 1993.
    Refiners are required to report, on a per-batch basis, the total weight
  percent oxygen and weight percent oxygen attributable to renewable oxygenates
  contained in the gasoline they produce. For all types of renewable RBOB, the
  refiner must report the weight percent oxygen subsequent to oxygenate
  blending, subject to the conditions set forth in Sec. 80.83(c). These
  requirements supplement the quarterly reports requirements found in existing
  Sec. 80.75(a) of the reformulated gasoline regulations.
    Refiners are also required to submit, on an annual basis, a report for all
  reformulated gasoline and RBOB produced during the previous calendar year
  averaging period. These requirements supplement the fourth quarterly report
  requirements found in existing Sec. 80.75(a). The fourth quarterly report
  must include (among other specified items) information regarding the total
  volume of reformulated gasoline and RBOB, the compliance total for renewable
  oxygen, the actual total for renewable oxygen, information about credits
  generated and transferred, and information about the party to whom (or from
  whom) credits were transferred.
    EPA intends that the attest engagement requirements for reformulated
  gasoline will apply to the renewable oxygenate standard. Sections 80.128 and
  80.129 contain agreed upon procedures for refiners and importers and
  downstream blenders, respectively. These new provisions supplement the
  reformulated gasoline attest engagement requirements found in subpart F of
  that regulation. Furthermore, other provisions contained in the reformulated
  gasoline regulations, and not specifically discussed in this preamble, would
  apply to the renewable oxygenate standard in the same manner as they apply to
  other reformulated gasoline standards. These include, among other things, the
  definitions of parties; the designation requirements; testing requirements,
  including sampling and testing; and controls, prohibitions, liabilities, and
  defenses.
    There are no gasoline survey requirements associated with the renewable
  oxygenate requirement, because there is no covered area-specific standard
  associated with this program.

  2. Requirements Specific to the State of California

    Today's renewable oxygenate rule also applies to all gasoline that is sold
  in the Federal reformulated gasoline areas of Los Angeles and San Diego.
  Refiners of California gasoline, as defined in Sec. 80.81 of the reformulated
  gasoline regulation, are responsible for all renewable oxygenate provisions
  (including recordkeeping and reporting), except where a specific enforcement
  exemption has been granted under Sec. 80.81 of the reformulated gasoline
  regulation. Today's regulation specifically provides that California gasoline
  must meet, to the extent the requirements relate to the renewable oxygenate
  rule, the designation of gasoline requirements for the two types of renewable
  RBOB; the annual attest engagement requirements; and downstream blending
  requirements of Sec. 80.69. Section 80.84(h) of the renewable oxygenate
  regulation includes specific provisions for California gasoline sold within
  reformulated gasoline covered areas as specified in Sec. 80.70. Under Sec.
  80.83(h)(2), California gasoline is presumed to be used in the Los Angeles or
  San Diego covered area if the gasoline is produced by a refinery located
  within Los Angeles or San Diego. Gasoline is also presumed to be used in the
  Los Angeles or San Diego covered area if the gasoline is transported to a
  facility within one of these areas or to a facility from which gasoline is
  transported within one of these areas. Refiners may refute these presumptions
  through the production of appropriate documentation showing that the
  gasoline, in fact, is transported for use outside of the Los Angeles or San
  Diego reformulated gasoline areas. These areas are specified in Sec. 80.70.
    Under Sec. 80.83(h)(3), California gasoline is considered to be designated
  as VOC-controlled if the Reid Vapor Pressure (RVP) of the gasoline, or RBOB
  subsequent to oxygenate blending, is or is intended to meet a standard of 7.8
  pounds per square inch (psi) or less in the case of gasoline intended for use
  before March 1, 1996, or 7.0 psi or less in the case of gasoline intended for
  use on or after March 1, 1996.21
    Note 21 Beginning March 1, 1996, the California Air Resources Board (CARB)
  will enforce regulations which set the maximum RVP for the air basin
  containing the Federal reformulated gasoline areas of Los Angeles and San
  Diego at 7.0 pounds per square inch (psi). These requirements apply during
  the period of April 1 through October 31 (March 1 for upstream parties).

  B. Blendstock Issues

    EPA's proposed oxygenate rule would have only allowed refiners to include
  in renewable oxygenate compliance calculations the renewable oxygenate that
  is added by downstream oxygenate blenders where the refiner carried out an
  appropriate quality assurance program over downstream oxygenate blenders. A
  quality assurance program is intended to ensure that when refiners claim
  credit for downstream blending of renewable oxygenate that the oxygenate
  added is renewable, that the renewable oxygenate is added to the RBOB
  produced by the refiner, and that the volume of renewable oxygenate claimed
  is correct.
    EPA received several comments from refiners regarding renewable oxygenate
  blendstocks in response to this proposal. Some commenters felt that the
  proposed renewable oxygenate requirement would be difficult, if not
  impossible, to implement as it would force refiners and importers to
  implement costly oversight programs over independent blenders.
    A commenter also stated that the proposed renewable oxygenate rule's
  reliance on RBOB availability is "at odds with" the reformulated gasoline
  program requirements for RBOB production and handling. Under the final
  reformulated gasoline rule, the commenter notes, RBOBs having different
  oxygenate requirements are segregated to the point of oxygenate blending. For
  example, the commenter points out, "any oxygenate" RBOB must be segregated
  from "ether-only" RBOB. The segregation requirements, combined with the
  renewable oxygenate mandate, will (according to the commenter) exacerbate the
  problems associated with supplying the needed amount of RBOB.
    EPA agrees for the most part with these comments and has provided for
  greater downstream oxygenate blending of renewables similar to the final
  reformulated gasoline rule. As explained in greater detail in the general
  overview section ("A," above), the final renewable oxygenate regulations
  allow for two compliance options. The first option permits the refiner to
  claim the actual amount of renewable oxygenate added by the downstream
  blender and requires that both a contractual relationship and a testing and
  oversight program exist. The second option allows the refiner to designate
  RBOB as one of two generic renewable types 22 and to claim credit for
  downstream blending of renewable oxygenate based on specified assumptions.
    Note 22 For areas which have been granted an extended non-commingling
  season, there are three generic RBOB types.

    Under Sec. 80.83(f), oxygenate blenders are required to maintain and, upon
  request, deliver to the EPA Administrator, or the Adminstrator's designated
  representative, records demonstrating the renewable nature and source of the
  oxygenate used; characteristics in terms of volume, type, and purity; and
  product transfer documentation for renewable oxygenate, reformulated
  gasoline, or RBOB for which the blender acts as transferor or transferee.
  Although these blender recordkeeping requirements vary from the renewable
  oxygenate proposal, they are consistent with recordkeeping requirements
  associated with other reformulated gasoline requirements and will not impose
  a significant additional recordkeeping burden. As discussed in greater detail
  in "A. Overview of the Enforcement Scheme," above, EPA has created new
  categories of renewable RBOB to allow greater refiner flexibility in the
  renewable oxygenate requirement.

  C. The Renewable Oxygenate Requirement for California Areas

    The renewable oxygenate requirements apply to Federal reformulated gasoline
  sold in the two covered areas in the State of California, Los Angeles and San
  Diego. However, refiners who produce reformulated gasoline for use in
  California are exempt from most reformulated gasoline enforcement mechanisms
  beginning in 1995. See Sec. 80.81. This California exemption is based on the
  fact that beginning in March 1996, all gasoline used in California will be
  subject to the California Phase II reformulated gasoline standards
  ("California gasoline"), which EPA has concluded are at least as stringent as
  the federal Phase I reformulated gasoline emissions standards. As a result,
  refiners who produce California gasoline are exempt from most federal
  reformulated gasoline enforcement requirements, including designating
  gasoline as either reformulated or conventional gasoline, recordkeeping 23
  and reporting. Refiners of California gasoline are not exempt, however, from
  meeting the federal reformulated gasoline standards, including the renewable
  oxygenate standard.
    Note 23 Refiners of California gasoline are required to keep records
  required by California State law for five years, however.

    In the proposed rule, EPA suggested a simple method to ensure that an
  appropriate volume of California gasoline meets the renewable oxygenate
  requirement. Specifically, EPA proposed that each refiner who produces
  California gasoline be required to meet the renewable oxygen standard for 54%
  of its volume California gasoline. The 54% figure was derived from the
  historical volume of gasoline used in the Los Angeles and San Diego markets
  as a portion of the entire state's market.
    EPA received several comments with respect to the "54% proposal." Some
  commenters, including industry and trade associations, felt that EPA has no
  legal authority under Sec. 211(k) of the Clean Air Act to require all
  California refiners to meet the renewable oxygenate standard for 54% of their
  entire volume of California gasoline. These commenters argued that imposing
  the renewable oxygenate requirement in this manner would amount to requiring
  renewable oxygenate in Federal non-reformulated as well as reformulated
  gasoline. Two other commenters expressed support for EPA's 54% proposal,
  however, as a simple solution to a difficult program issue.
    EPA also received comments indicating that the Northern and Southern
  California markets are truly distinct and that the burden on refiners to
  account for gasoline they market in the Los Angeles and San Diego area would
  not be great. One commenter stated that EPA may be able to make a rebuttable
  presumption that all gasoline produced in the Los Angeles and San Diego areas
  or imported into those areas is reformulated gasoline for the purpose of the
  renewable oxygenate mandate. However, this commenter also stated that
  refiners should be able to rebut the presumption with respect to gasoline
  exported out of the Los Angeles and San Diego area.
    After consideration of the comments received, and as discussed above, EPA
  has decided to impose the renewable oxygenate requirement only for gasoline
  used in the Los Angeles and San Diego areas. EPA believes that it is possible
  to have an effective renewable oxygenate program for the two Federal
  reformulated gasoline program areas, and recognizes that its authority under
  section 211(k)(1) is limited to reformulated gasoline areas.
    EPA received comments from a California state agency which recommended a
  change in the proposed implementation date of January 1, 1995 to coincide
  with the March 1, 1996 refinery production deadline for California
  reformulated gasoline. Combined with this was a request to phase in the
  proposal over a 22 month period as follows: 10% on March 1, 1996, 20 percent
  on January 1, 1997, and 30% on January 1, 1998. EPA does not believe that a
  three year phase-in or delay is necessary and has received no compelling
  evidence that California refiners would be particularly disadvantaged with
  respect to lead time. EPA has included a phase-in schedule in today's rule
  for all covered areas.
    Various comments related to California's air quality outside of the Federal
  VOC-controlled gasoline season are discussed elsewhere in this preamble. One
  commenter suggested that, since California has been allowed to develop its
  own reformulated gasoline regulations "it might make sense" to let California
  decide which renewable oxygenates qualify for the renewable oxygenate
  requirement and when they qualify. The commenter felt that California
  officials might conclude, after modeling air quality effects, to allow
  ethanol even during the summer months.
    EPA responds that California is subject to the reformulated gasoline
  requirements of Sec. 211(k) of the Clean Air Act, although an exemption from
  certain recordkeeping and enforcement requirements has been granted for
  purposes of the California program. To ensure that the objectives of the
  renewable oxygenate program are met, EPA believes that it is important that
  the Federal reformulated gasoline areas located within the State of
  California to be subject to this program. EPA has a strong interest in
  consistent application of the renewable oxygenate requirements across all
  reformulated gasoline areas and does not believe that it is appropriate for
  state officials to decide which oxygenates satisfy the Federal requirement.
    EPA received other comments specifically related to application of the
  renewable oxygenate rule to California. A few commenters felt that California
  should be exempt from the renewable oxygenate requirement as an outgrowth of
  California's exemption from most reformulated gasoline enforcement
  mechanisms. EPA does not agree. Although refiners of California gasoline have
  been exempted from many enforcement requirements, they are not exempt from
  the requirement that their gasoline meet Federal reformulated gasoline
  standards. Likewise, EPA believes that Federal reformulated gasoline in
  California should be subject to the renewable oxygenate standard, with
  appropriate exemption from certain enforcement procedures.
    Comments received from a California state agency indicated that oversight
  should rest with the California Air Resources Board (CARB). EPA responds that
  there is currently no state mandate to correspond to the renewable oxygenate
  mandate contained in these regulations, thus, this appears to be a moot
  issue.

  D. Shoulder Season

    EPA received some comments from parties concerned that the renewable
  oxygenate requirement might lead to exceedances of the ozone standard during
  the "shoulder season" (i.e. the time period immediately before and after the
  Federal VOC control season) due to increased use of ethanol. These comments,
  and EPA's response, i.e., a petition process which would allow the Governor
  of any state affected by the reformulated gasoline program to request an
  extension of the non-commingling season beyond the VOC control season, are
  addressed elsewhere in section III.G of this preamble.
    To ensure that the state shoulder season petitions are implemented
  effectively, Sec. 80.83(i) creates a category of RBOB, called "non VOC
  controlled renewable ether only" which may be blended with ETBE or another
  oxygenate that does not exhibit commingling effects when blended with other
  gasolines. If a Governor's petition for an extended non-commingling season is
  granted, terminals will be required to keep "non VOC controlled renewable
  ether only" RBOB on hand for blending with appropriate oxygenates during the
  extended non-commingling season.

  E. Other Issues

    Some commenters asserted that EPA should allow temporary "good faith
  exemptions" to refiners that make a showing that complying with this proposal
  would "result in extraordinary economic hardship." The reformulated gasoline
  rule contains an exemption for "inability to produce conforming gasoline in
  extraordinary circumstances." See Sec. 80.73 of the reformulated gasoline
  regulations. This exemption does cover extreme and unusual circumstances
  outside of the control of the refiner and would encompass such circumstances
  as "Acts of God" or natural disasters. EPA recognizes that this exemption may
  apply to the renewable oxygenate mandate. EPA does not believe that an
  additional exemption for purely economic reasons is appropriate, particularly
  given that the renewable oxygenate mandate is a year 'round credit program.

  V. Federal Preemption

    This program is based on section 211(k) of the CAA. The provisions for the
  prohibition of state and local controls under section 211(c)(4) therefore do
  not apply.

  VI. Environmental, Energy, and Economic Impacts

  A. Environmental Impacts

  1. Overview

    Today's renewable oxygenate rule is projected to have a number of direct
  and indirect environmental impacts resulting from changes in the type of
  oxygenates that likely would have been used to fulfill the requirements of
  the RFG program. Determining the precise nature of these impacts is difficult
  because the renewables program provides considerable flexibility in meeting
  the 30 percent renewables requirement. In the case of VOC, NOx and air
  toxics, however, the impact of today's rule is constrained because the
  renewables program will take place within the context of the reformulated
  gasoline program. Today's rule may also have effects on carbon monoxide,
  global warming, and non-air quality aspects of the environment since these
  effects are not constrained by the RFG emission models or performance
  standards.
    Today's rule does not alter the VOC, NOx, or toxics emission performance
  standards for reformulated gasoline. Therefore, the emission performance of
  reformulated gasoline as measured using the relevant RFG emission model (the
  Simple Model in 1995-1997 or the Complex Model in 1998 and beyond) will
  remain essentially unchanged. Today's rule will affect VOC, NOx, or toxics
  emissions only to the extent that the effects of fuel changes resulting from
  today's rule are not included in the applicable RFG certification models.
  These effects (predominantly the commingling and front-end distillation
  effects of adding oxygenates to gasoline) should be beneficial for VOC
  emissions to the extent that ETBE displaces either ethanol or MTBE use during
  the summer months. Exact quantification of these benefits is difficult
  because the changes in ETBE use and the quantification methodology are both
  uncertain.
    Health studies of ETBE are being initiated, since virtually no health data
  exist at present. These studies in conjunction with studies of potential ETBE
  related exposures would contribute to our understanding of potential public
  health risk. This work is designed to resolve existing uncertainties as to
  whether unique concerns may exist with ETBE as compared to the ethanol, MTBE,
  and/or other compounds it could displace.
    Concerns with respect to potential VOC emission increases outside of the
  VOC control season were raised in the comments on the proposal. However, VOC
  emissions are not directly controlled outside of the VOC-control season under
  the RFG program (although some control due to early compliance with the
  requirements is expected based on past experience with other programs). The
  issue of VOC emission increases during the "shoulder season" is addressed in
  detail in section III.G.
    The remainder of this section is divided into four parts. First, the air
  quality effects of the renewable oxygenate rule in 1998 and later years (when
  the Complex Model is in effect) are discussed. Second, the air quality
  effects of today's rule during the Simple Model years (1995-1997) are
  discussed. Third, the global warming impact of today's rule is discussed.
  Fourth, the non-air quality effects of today's rule is discussed.

  2. Air Quality Impacts Under the Complex Model

    As discussed in section III, the renewable oxygenate program is expected to
  stimulate the use of ETBE during the summer months and increase the use of
  ethanol during the winter months. According to the Complex Model, these
  oxygenates provide smaller toxics benefits than do MTBE or TAME when used at
  identical oxygen content levels. Any changes in oxygenate type resulting from
  today's rule will have no effect on overall air toxics emission performance,
  however, since the Complex Model will account for the effects of changes in
  oxygenate type and the emission performance standards are unchanged by
  today's rule. As discussed in section VI.C of this notice, however, the
  increase in ethanol and ETBE use may increase the cost of complying with the
  RFG toxics emission performance standards.
    In addition to impacts on toxics compliance, any shifts in oxygenate use
  resulting from today's program will also cause changes in the concentrations
  of other fuel parameters in the final gasoline blend, since different
  oxygenates require different volumes to meet the same oxygen content
  requirement. Changes in these other fuel parameters (referred to as the
  dilution effect) can affect VOC, NOX, and air toxics performance. However,
  the RFG performance standards remain unchanged by today's rule, and the
  Complex Model will account for the VOC, NOX, and toxics emission effects of
  any dilution-related changes in the level of aromatics, olefins, sulfur,
  E200, E300, or benzene. As a result, EPA has concluded that today's rule will
  not alter the VOC, NOX, and toxics emission benefits of the RFG program. As
  discussed in section VI.C of this notice, however, refiners may experience
  positive or negative economic impacts in maintaining the required emission
  performance of their reformulated gasoline as a result of today's rule.
    Two other effects of today's rule are not reflected in the Complex Model
  and may affect summer nonexhaust VOC and toxics emissions, however. First,
  commingling-related emissions during the VOC control season would be reduced
  to the extent that ETBE replaces ethanol in summer RFG.
    Second, increased summer ETBE use (and reduced summer ethanol use) would
  improve the front-end distillation characteristics of summer RFG, thereby
  potentially reducing summer nonexhaust VOC and toxics emissions to some
  degree. These effects, however, are contingent upon changes in the amounts of
  ETBE and ethanol that are blended into RFG during the summer months as a
  result of this rulemaking. Since it is uncertain how much ETBE and ethanol
  would have been used during the summer months absent today's rulemaking, and
  is still uncertain how much of each oxygenate will be used as a result of
  today's rulemaking, it is not possible to quantify these benefits.
  Furthermore, even if the volumes of oxygenate use were known, the effect of
  front-end distillation changes (other than RVP) on nonexhaust VOC emissions
  is not yet quantifiable with a sufficient degree of certainty. Limited data
  and scientific theory suggest it is a real effect, as discussed in the
  Regulatory Impact Analysis for the RFG final rule, but reliable
  quantification is not yet possible.
    Carbon monoxide emissions are not regulated directly by either the RFG
  program or today's rule. However, carbon monoxide emissions can be affected
  by gasoline properties. Higher oxygen levels are known to result in large
  reductions in carbon monoxide emissions, and lower RVP levels are known to
  result in small reductions in carbon monoxide at temperatures above 45
  degrees Fahrenheit. Both of these effects are currently incorporated in EPA's
  MOBILE5a in-use emission model.
    Since the oxygen content requirements of the RFG program are not altered by
  today's rule and since summer RVP levels are controlled by the RFG
  performance standards, no change in CO emission levels is anticipated during
  the summer months. Furthermore, based on EPA's MOBILE5.a emission factor
  model, there would be no effect on CO emissions of an increase in RVP levels
  during the winter months (when RVP is not constrained by the RFG program) due
  to increased ethanol use on the colder days when most carbon monoxide
  exceedances occur, since the model does not show an effect of RVP on CO
  emissions below 45 degrees Fahrenheit. The only effect of today's rule on CO
  emissions would be a potential small increase due to increased RVP levels
  resulting from increased ethanol use on those winter days with temperatures
  above 45 degrees Fahrenheit.
    Other fuel parameters may also affect carbon monoxide emissions. However, a
  model for CO incorporating other fuel parameters is not yet available. Any
  such effects would be limited by the constraints placed on these fuel
  parameters by the VOC, NOX, and air toxics RFG emission performance
  standards.

  3. Air Quality Impacts Under the Simple Model

    The air quality effects of today's rule under the Simple Model are, for the
  most part, expected to be similar to those under the Complex Model, since the
  effects on fuel composition are expected to be similar with two main
  exceptions. First, significant ETBE use is not expected to be possible before
  the summer of 1996. Second, EPA anticipates that in order to meet the
  requirements of today's program and the existing RFG program, refiners may
  find it necessary for the first few years to blend additional oxygenates into
  their RFG beyond the level necessary to meet the 2.0 weight percent oxygen
  requirement. In particular, refiners may find it necessary to blend up to 10
  percent ethanol by volume during the winter months in RFG markets with the
  supply, distribution, and blending capacity to do so. Until the distribution
  and blending infrastructure for ethanol use is expanded, it is unlikely that
  this increase in ethanol use will be offset through oxygenate trading given
  the limitations of the RFG program. Since ETBE use will be limited, and since
  the volume of ethanol used will be similar to the volume of MTBE displaced
  during the winter (10 vs. 11 volume percent), dilution effects may be small
  during the first few years of the program.
    While the effects of dilution on emission performance may not be reflected
  fully in Simple Model compliance calculations since it does not account for
  all the fuel effects included in the Complex Model, EPA would expect any
  resulting air quality effects to be minimal for several reasons. First, as
  discussed above, EPA expects the dilution effects to be minimal during the
  first years of the program. Second, RFG producers are required under the
  Simple Model to not exceed their 1990 baseline levels of sulfur, T90, and
  olefins. These caps limit the risk of any detrimental air quality effects
  related to differences in dilution. Furthermore, the economic incentives of
  gasoline production may result in refiners producing at or near these caps,
  regardless of the type or volume of oxygenate used. Third, refiners are
  unlikely to invest in processing equipment to produce gasoline during 1995-
  1997 which will make it more difficult for them to comply with the 1998
  requirements under the Complex Model. Fourth, any remaining risks are limited
  to the three-year period during which the Simple Model is in effect. Fifth,
  some refiners may opt to use the Complex Model prior to 1998, which would
  have the effect of controlling any detrimental environmental effects related
  to changes in dilution or oxygenate type.
    As discussed above with regard to the impacts on air toxics emissions
  resulting from changes in oxygenate type, today's rule does not alter the
  performance standards under the Simple Model. Nevertheless, EPA does
  recognize that the reduced toxics emission benefits of ethanol and ETBE
  relative to MTBE under the Simple Model (as under the Complex Model) may
  increase toxics compliance costs, as discussed in section III.C. In addition,
  depending on how refiners chose to adjust their fuels to offset the loss in
  air toxics performance, the complex model may suggest some degradation in in-
  use (as opposed to certification) air toxics emissions performance with the
  use of ethanol or ETBE instead of MTBE which is not accounted for by the
  Simple Model. As explained in more detail in the RIA, this situation arises
  due to differences between how the Simple Model and Complex model predict air
  toxics emission performance. If some refiners choose to maintain air toxics
  emission performance by reducing aromatics instead of benzene, then the
  complex model suggests less in-use emission performance is achieved in-use
  with ethanol or ETBE than with MTBE. However, EPA expects few refiners to
  choose to maintain air toxics emission performance by reducing aromatics for
  two reasons. First, aromatics control is, in general, believed to be the more
  costly of the two approaches. Second, refiners are unlikely to invest in
  processing equipment to comply with the simple model for 1995-1997 which will
  not also provide compliance under the complex model in 1998. Regardless of
  which approach refiners take, however, this issue does not exist for that
  fuel certified under early use of the complex model, and disappears entirely
  in 1998 with mandatory use of the complex model.
    EPA also believes the commingling and distillation-related emission effects
  of today's rule to be minimal under the first few years of the program. The
  renewable oxygenate program does not provide incentives to increase summer
  ethanol, so commingling- and distillation-related nonexhaust VOC and toxics
  emissions from summer RFG should be unaffected.
    As discussed previously, today's rule is not expected to significantly
  increase carbon monoxide emissions in the long term. In the short term,
  however, today's rule may reduce carbon monoxide emissions as refiners blend
  additional oxygenates during the first few years of the renewable oxygenate
  program (as discussed above). This increase in oxygenate content would reduce
  carbon monoxide emissions, and such reductions would occur during the winter
  months when carbon monoxide exceedances are most common.

  4. Global Warming Impacts

    According to the DOE report, today's rule is unlikely to result in global
  warming benefits in the near term. In the longer term, however, today's rule
  is expected to stimulate investment in higher-efficiency renewable oxygenate
  production processes which could offer significant global warming benefits.
  Additional discussion of the potential global warming benefits of today's
  program is contained in section III.H of this notice.

  5. Non-Air Quality Impacts

    The Agency is concerned about other environmental impacts of the renewables
  requirement such as water pollution and soil erosion. Comments were submitted
  to the Agency stipulating that, as a result of the renewables program, corn
  may be grown in place of soybeans and hay plant rotations which could result
  in decreased soil quality including compaction, salination, acidification,
  and loss of biological activity. New corn production to support increased
  ethanol demand in response to today's rule could also increase soil erosion
  and affect water quality and water flow. Corn farming was alleged to be the
  primary cause of agro-chemical contamination of groundwater. In addition, the
  increased barge shipments of ethanol resulting from this program were alleged
  to increase the environmental risks and clean-up costs associated with
  potential ethanol spills.
    As discussed in section III.F, EPA has concluded that the renewable
  oxygenate program is unlikely to have a significant impact on total corn
  output in the near term. The expected 490 million gallons of new ethanol
  demand resulting from today's rule would require an increase in corn
  production of only approximately 2 percent. Thus, the environmental impacts
  associated with increased corn production are also expected to be small. In
  addition, future farming efficiency improvements are expected to reduce the
  environmental impact of corn production. Furthermore, the commercialization
  of ethanol production techniques which rely on agricultural wastes or
  cellulosic feedstocks would eliminate the need to increase corn production to
  support this program. As mentioned previously, EPA expects the renewables
  requirement to help stimulate development and commercialization of such
  technologies.
    EPA also believes that any adverse soil and water impacts from today's rule
  will be adequately addressed through means other than the renewable oxygenate
  program. Concerns related to the water impacts of ethanol production will be
  controlled under the provisions of the Clean Water Act. USDA has several
  programs in place to address soil erosion, and the Coastal Zone Act of 1990,
  which requires a nutrient management plan for covered areas, has helped
  increase farm efficiency and reduce nutrient and agrochemical runoff.

  B. Energy Impacts

    The energy benefits of the renewable oxygenate program depend on the
  oxygenates used and the production processes used to produce them, which can
  vary depending on the timeframe of interest. As described above, in the early
  years of the program the renewable oxygenate requirement is expected to be
  met primarily with ethanol blended into winter RFG. For at least the first
  two years, this ethanol would be produced in existing plants or new plants
  equipped with current technology. Some diversion of ethanol currently being
  blended into conventional gasoline may also occur. Small additional
  quantities of ETBE may be used in summer RFG and ethanol use in summer RFG
  may decrease, but these shifts and their energy impacts will be very small
  relative to the effects of the increase in wintertime ethanol use. According
  to a study prepared by the Department of Energy,24 if the 30 percent
  renewables requirement is met by blending ethanol produced from new ethanol
  plants and ethanol plant expansions (as opposed to ethanol produced in
  existing facilities and displaced from its current markets) into winter RFG,
  the overall fossil energy consumed in RFG production and use would be 0.7
  percent lower than would be the case if MTBE produced from natural gas were
  the only oxygenate used in RFG. This estimate by DOE was reduced to as low as
  0.5 percent when more conservative energy input assumptions were incorporated
  into their calculational methodology, and was increased to as high as 0.9%
  when energy input assumptions from USDA were incorporated. The even greater
  reduction in natural gas use would be partially offset by a 2.0 percent
  increase in crude oil use. It should be noted that even with this increase in
  crude oil use, the total amount of crude oil used to produce RFG under
  today's rule would still be 8.6 percent lower than if conventional gasoline
  were produced instead.
    Note 24 "Analysis Memorandum: Energy Requirements and CO2-Equivalent
  Emissions of RFG," prepared by Margaret Singh, Argonne National Laboratory,
  for Barry McNutt, U.S. Department of Energy, June 6, 1994.

    DOE projected that as ETBE capacity becomes available, its use in summer
  RFG would reduce fossil energy use by 1.7 percent relative to MTBE used in
  summer RFG. The DOE study indicates that if ETBE is blended into VOC-
  controlled RFG to meet the 30 percent requirement in the summer, and ethanol
  is still used to meet the requirement during the winter, the fossil energy
  benefits of the program being promulgated today program would be
  approximately 0.6 percent (0.4 to 0.8 using the range of input assumptions
  evaluated in their final report) lower than would be the case if MTBE
  produced from natural gas were the only oxygenate used in RFG.
    The energy benefits of this program are expected to become more pronounced
  in later years. Improvements in the energy efficiency of ethanol production
  will further reduce the fossil energy required to produce ethanol. Further
  gains can be achieved by reducing energy consumption in corn farming through
  changes in farming practices, using more energy-efficient equipment,
  increasing per-acre crop yields, and decreasing fertilizer use. Comments
  submitted by USDA and others, as well as previous studies by DOE and EPA
  cited in the proposal, indicate that as new feedstocks for ethanol such as
  cellulose are commercialized, and as renewable methanol production becomes
  viable, the fossil energy benefits of this program would increase
  substantially relative to nonrenewable MTBE use. Using current estimates of
  the energy inputs relative to the energy outputs for ethanol from cellulose
  (approximately 1:5), the fossil energy benefits of the program being
  promulgated today program would increase to approximately 1.3 percent
  relative to the case if MTBE produced from natural gas were the only
  oxygenate used in RFG. By providing a secure market for renewable oxygenates,
  today's program will help provide the certainty needed to encourage private
  investments in modern, high-efficiency renewable oxygenate production
  technology.

  C. Economic Impacts

  1. Oxygenate and Blending Costs of the Program

    The renewable oxygenate program is projected to add $4 million to $60
  million in cost to the RFG program annually prior to the year 2000 and $16
  million to $60 million in cost to the RFG program annually in 2000 and
  beyond. These costs involve three major components: the cost of renewable
  oxygenates relative to nonrenewable oxygenates, transportation and blending
  costs, and toxics compliance costs. The cost estimates include the impact of
  this rule on fuel economy. These costs also assume that ethanol is blended at
  a concentration of 6.04 volume percent (2.1 weight percent oxygen); to the
  extent that ethanol is blended at higher concentrations, costs (particularly
  the toxics compliance costs) would be reduced. In addition, the renewable
  oxygenate program is projected to add one-time costs of $17.6 million for
  additional tankage, storage, and blending capacity. The derivation of the
  various components of the cost for the renewable oxygenate program are
  described below and in more detail in section IV of the Regulatory Impact
  Analysis for this rule.
    Before estimating the costs for the renewable oxygenate program, however,
  it is necessary to estimate how much additional ethanol will be used in RFG
  compared to the amount of ethanol that would have been used in the absence of
  today's rule. Only those costs resulting from the new ethanol demand required
  by the renewable oxygenate program alone are included in the cost estimates
  determined here. Deriving estimates for that amount of ethanol that would
  have been used under the RFG program in the absence of the renewables
  requirement is extremely difficult. However, the amount of new ethanol
  capacity planned or under construction prior to the December proposal,
  combined with the ethanol currently blended in the winter months in RFG areas
  would have enabled ethanol to be used in up to 15 percent of the RFG
  oxygenate market without displacing ethanol from existing markets. Based on
  this information, EPA estimates that today's rule is likely to increase
  ethanol's share of the total oxygenate market by approximately 15 percentage
  points, which amounts to 335 million gallons of ethanol.
    With regard to the first component of the cost analysis, renewable
  oxygenate costs, ethanol used in winter RFG is projected to be the low-cost
  oxygenate on a per unit oxygen basis (based on EPA's cost analysis for the
  RFG final rule and excluding any additional transportation and blending costs
  as discussed below). Hence EPA expects that if winter ethanol is used to meet
  the the renewable oxygenate requirement, today's rule will not impose
  additional direct costs for oxygenates on the RFG program. In fact, assuming
  335 million gallons of new ethanol demand, today's rule will reduce direct
  oxygenate costs by $22-72 million annually.
    To the extent that ETBE is used to meet part of the renewable oxygenate
  requirement, however, today's rule could increase the cost of the program.
  EPA projects that ETBE-blended RFG would cost 0 to 0.8 cents per gallon more
  than ethanol-blended or MTBE-blended RFG. This estimate, which is highly
  sensitive to MTBE and ethanol costs, includes ETBE's value in reducing RVP
  and increasing octane but does not fully reflect its value in diluting the
  levels of aromatics and sulfur in gasoline. It also assumes that ETBE
  producers can take advantage of the reduced gasoline excise tax for fuels
  containing ethanol. Without this tax reduction, the cost of ETBE-blended RFG
  would be 3.1 to 3.9 cents per gallon higher than MTBE-blended RFG.
    With regard to the second component of the cost analysis, ethanol is
  produced primarily in the Midwest, but RFG will be required in California,
  the Northeast, and Texas in addition to several Midwestern markets. As a
  result, additional transportation costs may be incurred. EPA estimates the
  cost of transporting ethanol to range from 3 to 11 cents per gallon of
  ethanol, depending on the markets to which it is being shipped. As discussed
  in detail in the RIA, EPA estimates the average cost of transporting a gallon
  of ethanol to RFG markets to be 6-8 cents per gallon. Based on the estimate
  that the renewable oxygenate program will increase ethanol demand by 335
  million gallons per year, the total transportation-related cost due to
  today's rule would range from $20 million to $27 million annually.
    In many parts of the nation, facilities to store and blend ethanol have
  already been constructed. However, adequate facilities are not currently in
  place in many RFG markets. Based on information obtained from a draft DOE
  report,25 EPA estimates the cost of building sufficient storage and blending
  capacity to meet the renewable oxygenate requirement to be approximately
  $17.6 million. This represents a one-time cost for additional tankage,
  storage, and blending capacity, however, and not a continuous cost. There may
  be some additional cost for blending beyond the costs of the facilities and
  equipment, however, that is believed to be small.
    Note 25 "Assessment of Costs and Benefits of Flexible and Alternative Fuel
  Use in the U.S. Transportation Sector, Progress Report Three: Vehicle and
  Fuel Distribution Requirements (DRAFT)," United States Department of Energy,
  Office of Policy, Planning, and Analysis, July 1989.

    With regard to the third component of the cost analysis, under both the
  Simple and Complex reformulated gasoline emission models, ethanol and ETBE
  provide smaller toxics emission reduction benefits than do MTBE and TAME, the
  primary nonrenewable oxygenates expected to participate in the RFG program.
  To offset the increase in toxics emissions, refiners will have to alter other
  gasoline properties such as aromatics, benzene, or sulfur. Assuming that
  refiners lower benzene levels to offset any worsening in toxics performance,
  EPA estimates that the additional cost could range as high as 0.89 cents per
  gallon of RFG blended with ethanol in 1995-1999 and from 0.32 to 0.88 cents
  per gallon of RFG blended with ethanol in 2000 and beyond. The higher minimum
  costs in 2000 and beyond stem from the more stringent toxics standards and
  the larger contribution of exhaust toxics to total toxics; see the RIA for
  further details. These increased costs would be incurred only for the volume
  of RFG blended with ethanol in excess of the volume that would have been
  blended with these two oxygenates in the absence of today's rule. Assuming
  that ethanol volume increases by 335 million gallons (as discussed previously
  and in the RIA) and that ethanol is blended at 6.04 volume percent (or 2.1
  weight percent oxygen), the total volume of RFG involved would be
  approximately 5.55 billion gallons. This translates into an annual cost for
  the program of up to $49 million in 1996-1999 and $18 million to $49 million
  in 2000 and beyond.
    According to EPA's fuel economy analysis (as discussed in the RIA for the
  RFG final rule), ethanol-blended RFGs provide slightly poorer fuel economy
  than otherwise-identical RFGs which use MTBE or ETBE as the oxygenate. The
  fuel economy penalty amounts to approximately 0.2 percent for the additional
  5.55 billion gallons of RFG that would be blended with ethanol as a result of
  the renewable oxygenate program. Based on current wholesale gasoline prices,
  this reduction in fuel economy would add approximately $5.55 million in
  annual costs to the RFG program.

  2. Impact on Renewable Fuels Industry

    As discussed in section III of this notice, the renewables program will
  require blending approximately 490 million additional gallons of ethanol (or
  its equivalent) in RFG over and above the amount of ethanol blended into
  gasoline in RFG areas in 1993. This increase represents a growth of
  approximately 40 to 50 percent in renewable fuel demand from current levels.
  EPA is phasing in the renewable oxygenate requirement in order to avoid
  disrupting existing ethanol markets and the RFG program. If the renewable
  oxygenate program causes ethanol to shift out of its current markets into RFG
  markets, the benefits to the renewable fuels industry would be reduced and
  the long-term growth prospects for the industry would be jeopardized. Phasing
  the program in over two years permits a more orderly expansion of renewable
  oxygenate production capacity and helps assure that the additional demand
  created by today's rule will occur without causing undesirable logistical
  problems, which could result in supply problems and price spikes and might
  not help stimulate the use of renewable fuels in the United States.
    In addition, the certainty provided by today's rule is expected to
  stimulate considerable private investment in renewable fuel production
  technology and capacity. EPA expects this investment to accelerate the
  development and implementation of advanced, high-efficiency production
  processes, which in turn are expected to provide global warming benefits and
  larger fossil fuel energy savings than can be provided by existing ethanol
  production facilities.

  3. Impact on Farm Economy

    According to comments submitted by USDA, the renewable oxygenate program is
  expected to increase farm incomes by increasing demand for farm products and
  creating a market for agricultural waste products. Based on USDA estimates,
  the renewable oxygenate program will increase corn prices by approximately
  4.0-6.7 cents per bushel when fully implemented. Based on average annual corn
  production of 8.7 billion bushels, such a price increase would increase farm
  income by approximately $348-583 million.26 However, USDA projects a decrease
  in farm deficiency payments as a result of the increase in corn prices of
  $220-369 million, so the net increase in farm income would be $128-214
  million per year.27 The reader is referred to the RIA for a more detailed
  discussion of this estimate.
    Note 26 According to information provided by John W. McClelland of USDA,
  "Memorandum for Richard Wilson, Director, Office of Mobile Sources, U.S.
  Environmental Protection Agency," June 20, 1994.
    Note 27 According to information provided by John W. McClelland of USDA,
  "Memorandum for Richard Wilson, Director, Office of Mobile Sources, U.S.
  Environmental Protection Agency," June 20, 1994.

    To the extent that this increase in farm incomes results from higher prices
  for corn and other crops, some of the farm income benefits may be lost as
  feed costs for livestock producers increase. However, it is unlikely that
  price increases will account for the entire increase in farm incomes.
  Utilization of agricultural waste products and increased crop production are
  also expected to increase farm incomes without increasing the price per
  bushel for corn and other ethanol feedstocks. Hence the impact of the
  renewable oxygenate program is expected to have a net beneficial effect on
  the farm economy.

  4. Impact on Natural Gas, Methanol, and MTBE Sectors

    EPA recognizes that the renewable oxygenate program may affect the growth
  prospects for the natural gas, methanol, and MTBE sectors. To the extent that
  today's rule leads to larger market shares for ethanol and other renewable
  oxygenates than otherwise would occur, the market share for nonrenewable
  oxygenates would be smaller than otherwise would occur.
    However, EPA does not believe that today's rule will have a significant
  adverse impact on the natural gas, methanol, and MTBE industries for several
  reasons. First, EPA always has expected ethanol and its derivatives to play a
  role in the RFG program even in the absence of today's rule. Second, the
  advent of the Phase II RFG standards in 2000 will create powerful incentives
  to reduce the RVP of summer reformulated gasoline to very low levels. As a
  result, EPA had expected that ETBE and ETAE would be used beginning in 2000
  even without the promulgation of today's rule. EPA considers it unlikely that
  MTBE, methanol, and natural gas producers would install expensive capital
  equipment to satisfy demand only for Phase I of the program; instead, EPA has
  expected these industries to build capacity to satisfy the long-term demand
  for their product. Since such long-term demand would be limited by the growth
  in ETBE and ETAE demand for Phase II RFG, it is not clear to EPA that today's
  rule will reduce the growth of the methanol, MTBE, and natural gas industries
  below what it otherwise would have been.
    Third, even with today's rule, methanol and MTBE production is projected to
  grow quite rapidly. If MTBE captures 70 percent of the RFG oxygenate market,
  annual MTBE demand will grow from 2.3 billion gallons in 1993 to 4.1 billion
  gallons in 1995 and to 4.8 billion gallons by 1997 (when the Phase II
  California RFG program takes full effect), an increase of approximately 110
  percent. As a result, annual methanol production is projected to grow by 600
  million gallons in 1995 and 1996 and an additional 200 million gallons by
  1997. The demand for natural gas will grow even more dramatically in absolute
  terms, since natural gas is an economically attractive source of the
  isobutylene used to produce ETBE and is also used as an energy source in
  ethanol production, according to USDA.

  5. Impact on Highway Trust Fund and General Fund

    Renewable fuels blended directly into gasoline qualify either for income
  tax credit or reduced excise tax rates. The reduced excise tax rate is the
  form of the tax subsidy used most frequently and effectively reduces the flow
  of revenue into the Federal Highway Trust Fund. The income tax credits reduce
  the General Fund. At present, renewable ethanol and methanol derived from
  sources other than oil, natural gas, coal, and peat qualify for the reduced
  excise tax rates if they are blended into finished gasoline. Renewable ethers
  may also qualify for the reduced excise tax rates, although the mechanism by
  which the tax reduction is received makes it difficult and often uneconomical
  to obtain for potential blenders.
    To the extent that today's rule increases ethanol use in non-VOC-controlled
  RFG, it will reduce highway trust fund revenues. As discussed above, the
  amount of new ethanol capacity planned or under construction prior to the
  December proposal, combined with the ethanol currently blended in the winter
  months in RFG areas, would have enabled ethanol to be used in up to 15
  percent of the RFG oxygenate market without displacing ethanol from existing
  markets. Based on this information, EPA estimates that today's rule is likely
  to increase ethanol's share of the total oxygenate market by approximately 15
  percentage points, which amounts to 335 million gallons of ethanol. With a
  $0.54 per gallon tax subsidy for ethanol, EPA has concluded that today's rule
  will result in a loss of highway trust fund revenues of approximately $181
  million annually once the program is fully implemented. In addition, up to
  176 million gallons of the currently-planned additions to ethanol capacity
  will be eligible for an additional tax credit of $0.10/gallon under the small
  ethanol producer credit, which could reduce General Fund revenues by as much
  as $17.6 million. Finally, if ethanol is blended at 10 volume percent to meet
  the requirements of the renewable oxygenate program (which is especially
  possible in the early years of the program, as discussed elsewhere in this
  Preamble), then an additional $0.06 per gallon of ethanol would be diverted
  from the highway trust fund to to the General Fund. Hence the total loss in
  annual tax revenues resulting from the renewable oxygenate program would be
  as large as $199 million, while the loss in annual highway trust fund
  revenues is expected to range from $181 million to $201 million. These values
  could change as the level of ETBE use changes; depending on the extent to
  which the renewable oxygenate requirement is met via ETBE use, today's rule
  may have less of an impact on highway trust fund revenues. Beginning in 2000,
  EPA expects the Phase II RFG requirements to stimulate expanded use of ETBE
  in VOC-controlled gasoline to take advantage of its RVP-lowering properties.
  EPA believes this would have happened to some extent regardless of the
  renewable oxygenate requirement. Hence, EPA anticipates that beginning in
  2000, the reduction in highway trust fund revenues resulting from the
  renewable oxygenate requirement itself could decrease significantly below the
  estimates cited above. A more detailed discussion of the highway trust fund
  impact of today's rule can be found in the RIA.

  6. Impact on Farm Support Payments

    EPA received comments from farm interests and USDA claiming that the
  renewable oxygenate program would reduce government expenditures on farm
  income and farm price support payments. To the extent that this program
  increases crop prices, it should reduce farm program payments. As discussed
  in section VI.C.3, USDA projects that farm deficiency payments will decrease
  by $220-369 million per year.

  VII. Public Participation

    In its NPRM for this rule, EPA requested comment on all aspects of the
  proposal. In addition, EPA specifically invited public comment on the
  following issues: (1) EPA's statutory authority to promulgate this rule; (2)
  the extent to which renewable oxygenates would be used in reformulated
  gasoline absent the proposal; (3) the economic, energy, and crude oil import
  benefits to the nation resulting from the proposal; (4) any other approaches
  which could be used to achieve the same objectives; (5) the likelihood that
  the renewable oxygenate requirement would be met with domestically produced
  oxygenates absent a requirement to this effect, whether such a requirement
  would be desirable and legally permissible, and any other suggested
  approaches to ensure the domestic employment benefits of this program; (6)
  the climate change aspects of the proposal; (7) the definition of renewable
  oxygenates; (8) the need for performance-based standards for renewable
  oxygenates based on fossil energy impact or greenhouse gas emissions; (9)
  health effects data regarding renewable oxygenates whose use may be
  encouraged as a result of the program; (10) the appropriate level for the
  renewable oxygenate requirement, the feasibility of the requirement, lead-
  time requirements, the need for a phase-in period, and any other supply-
  related issues; (11) the need and justification for a year-round program in
  lieu of a summer-only program; (12) the allowance for year-round averaging of
  renewable oxygenate content; (13) the applicability of the program only to
  producers of reformulated gasoline rather than including downstream blenders;
  (14) the enforcement-related provisions; (15) the impact of the program on
  the already-promulgated reformulated gasoline program, and (16) a petition
  process to include additional renewable oxygenates.
    During the comment period and at the January 1994 public hearing, EPA
  received comments and testimony on various aspects of the proposal from
  numerous parties such as environmental organizations, states, environmental
  regulatory associations, corn growers, and farmers, as well as the petroleum,
  ethanol, and oxygenated fuels industries. The Agency has diligently reviewed
  and considered all written and oral comments on the renewable oxygenate
  proposal.
    For those readers interested in reviewing the comments related to the
  renewable oxygenate proposal for reformulated gasoline, all comments received
  by the Agency are located in the EPA Air Docket, Docket A-93-49 (See
  "ADDRESSES"). All significant comments were considered in revising the
  provisions in the proposal and/or are responded to in the Regulatory Impact
  Analysis and Response to Comments document contained in Docket A-93-49.

  VIII. Compliance With Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) of 1980 requires federal agencies to
  examine the effects of regulations and to identify significant adverse
  impacts of federal regulations on a substantial number of small entities.
  Because the RFA does not provide concrete definitions of "small entity,"
  "significant impact," or "substantial number," EPA has established guidelines
  setting the standards to be used in evaluating impacts on small businesses
  28. For purposes of the renewable oxygenate requirement for reformulated
  gasoline, a small entity is any business which is independently owned and
  operated and not dominant in its field as defined by SBA regulations under
  section 3 of the Small Business Act.
    Note 28 U.S. Environmental Protection Agency, Memorandum to Assistant
  Administrators, "Compliance with the Regulatory Flexibility Act," EPA Office
  of Policy, Planning, and Evaluation, 1984. In addition, U.S. Environmental
  Protection Agency, Memorandum to Assistant Administrators, "Agency's Revised
  Guidelines for Implementing the Regulatory Flexibility Act," Office of
  Policy, Planning, and Evaluation, 1992.

    Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C.
  605(b), the Administrator certifies that this rule will not have a
  significant economic impact on a substantial number of small entities. The
  renewable oxygenate program will secure a market for oxygenate producers
  while simultaneously allowing refiners flexibility for small refiners to
  comply with the program's requirements. In addition, EPA decided against
  applying the renewable oxygenate requirement to downstream oxygenate blenders
  (except as discussed below), many of which are small entities. As discussed
  in the proposal, this would have required each blender to maintain at least
  two sources of oxygenate, one renewable and one not. Such an approach would
  have proven either uneconomical or to involve significant transaction costs
  related to averaging and trading.
    However, today's program will require additional reporting requirements of
  blenders (beyond the reformulated gasoline requirements). The renewable
  oxygenate program requires that blenders maintain records on two additional
  RBOB categories: any renewable oxygenate and renewable ethers. The additional
  reporting requirements, however, are economically insignificant and will not
  unduly burden small entities such as blenders.

  IX. Statutory Authority

    EPA believes that the final rule adopted today is a reasonable exercise of
  the discretionary authority granted the Agency under sections 211(k) and 301
  of the Act. EPA interprets the first sentence of section 211(k)(1) as broad
  authority to adopt reasonable requirements for reformulated gasoline, unless
  otherwise prohibited by the Clean Air Act or other statutory provision. EPA
  interprets the second sentence of section 211(k)(1) as authorizing EPA to
  adopt regulations for the reformulated gasoline program that result in the
  greatest emission reductions achievable, and at the same time tend to
  optimize the resulting impacts on cost, energy requirements, and other health
  and environmental impacts. In effect, EPA has full authority to adopt
  emission reduction standards and other requirements that achieve this result.
  For further discussion of the statutory authority for the renewable oxygenate
  program the reader is referred to section III.A.

  X. Administrative Designation and Regulatory Analysis

    Under Executive Order 12866, (58 FR 51,735 (October 4, 1993)) the Agency
  must determine whether the regulatory action is "significant" and therefore
  subject to OMB review and the requirements of the Executive Order. The Order
  defines "significant regulatory action" as one that is likely to result in a
  rule that may:
    (1) Have an annual effect on the economy of $100 million or more or
  adversely affect in a material way the economy, a sector of the economy,
  productivity, competition, jobs, the environment, public health or safety, or
  State, local, or tribal governments or communities;
    (2) Create a serious inconsistency or otherwise interfere with an action
  taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, user
  fees, or loan programs or the rights and obligations of recipients thereof;
  or
    (4) Raise novel legal or policy issues arising out of legal mandates, the
  President's priorities, or the principles set forth in the Executive Order.
    Pursuant to the terms of Executive Order 12866, the Administrator has
  determined that this rule is a "significant regulatory action" based on the
  above criteria. As such, this action was submitted to OMB for review. Changes
  made in response to OMB suggestions or recommendations have been documented
  in the public record: EPA Air Docket A-93-49.
    A Regulatory Impact Analysis (RIA) for the reformulated gasoline program
  has been prepared and placed in Public Docket No. A-93-49 to accompany this
  EPA notice of final rulemaking. A draft version of the Regulatory Impact
  Analysis was submitted to the Office of Management and Budget (OMB) for
  review as required by Executive Order 12866. Any written comments from OMB
  and EPA response to those comments have also been placed in the public docket
  for this rulemaking. A final version of the analysis is available in the
  docket cited above.

  XI. Compliance With the Paperwork Reduction Act

    The information collection requirements in this rule were submitted for
  approval to the Office of Management and Budget (OMB) under the Paperwork
  Reduction Act, 44 U.S.C. 3501 et seq. These requirements are not effective
  until OMB approves them and a technical amendment to that effect is published
  in the Federal Register. An Information Collection Request document has been
  prepared by EPA (ICR No. 1591.05) and a copy may be obtained from Sandy
  Farmer, Information Policy Branch; EPA, 401 M Street, SW. (Mail Code 2136);
  Washington, DC 20460 or by calling (202) 260-2740.
    This collection of information has an estimated reporting burden averaging
  0.64 hours per response and an estimated annual recordkeeping burden
  averaging 3.44 hours per respondent. If the burden associated with quality
  assurance testing is included these estimates increase to 22.44 and 5.44,
  respectively. These estimates include time for reviewing instructions,
  searching existing data sources, gathering and maintaining the data needed,
  and completing and reviewing the collection of information.
    Send comments regarding the burden estimate or any other aspect of this
  collection of information, including suggestions for reducing this burden to
  Chief, Information Policy Branch; EPA; 401 M St., SW. (Mail Code 2136);
  Washington, DC 20460; and to the Office of Information and Regulatory
  Affairs, Office of Management and Budget, Washington, DC 20503, marked
  "Attention: Desk Officer for EPA." EPA will respond to any OMB or public
  comments on the information collection requirements prior to OMB issuing
  approval.

  List of Subjects in 40 CFR Part 80

    Environmental protection, Air pollution control, Fuel additives, Gasoline,
  Motor vehicle pollution, Penalties, Reporting and recordkeeping requirements.

    Dated: June 30, 1994.

  Carol M. Browner,

  Administrator.

    For the reasons set forth in the preamble, part 80 of title 40 of the Code
  of Federal Regulations is amended as follows:

  PART 80--REGULATIONS OF FUELS AND FUEL ADDITIVES

    1. The authority citation for part 80 continues to read as follows:

    Authority: Sections 114, 211 and 301(a) of the Clean Air Act as amended (42
  U.S.C. 7414, 7545 and 7601(a)).
    2. Section 80.2 is amended by adding paragraph (ss) to read as follows:

  Sec. 80.2  Definitions.

  * * * * *

    (ss) Extended non-commingling season means the period during which
  oxygenates which demonstrate commingling-related increases in Reid Vapor
  Pressure (RVP) will not be permitted to receive credit toward the renewable
  oxygenate requirements of Sec. 80.83. Any extended non-commingling season is
  limited to that period of time determined by the Administrator pursuant to
  Sec. 80.83(i).
    3. Section 80.65 is amended by revising paragraph (d)(2)(vi) to read as
  follows:

  Sec. 80.65  General requirements for refiners, importers, and oxygenate
  blenders.

  * * * * *

    (d) * * *
    (2) * * *
    (vi) In the case of RBOB, as RBOB that may be blended with:
    (A) Any oxygenate;
    (B) Ether only;
    (C) Any renewable oxygenate;
    (D) Renewable ether only;
    (E) Non-VOC controlled renewable ether only.

  * * * * *

    4. Section 80.81 is amended by revising paragraphs (c)(2), (c)(5), (c)(6),
  and (c)(10) to read as follows:

  Sec. 80.81  Enforcement exemptions for California gasoline.

  * * * * *

    (c) * * *
    (2) The designation of gasoline requirements contained in Sec. 80.65(d),
  except in the case of RBOB that is designated as "any renewable oxygenate,"
  "non-VOC controlled renewable ether only", or "renewable ether only";

  * * * * *

    (5) The annual compliance audit requirements contained in Sec. 80.65(h),
  except where such audits are required with regard to the renewable oxygenate
  requirements contained in Sec. 80.83;
    (6) The downstream oxygenate blending requirements contained in Sec. 80.69,
  except where such requirements apply to the renewable oxygenate requirements
  contained in Sec. 80.83;

  * * * * *

    (10) The compliance attest engagement requirements contained in subpart F
  of this part, except where such requirements apply to the renewable oxygenate
  requirements contained in Sec. 80.83.

  * * * * *

    5. Section 80.83 is added to read as follows:

  Sec. 80.83  Renewable oxygenate requirements.

    (a) Definition of renewable oxygenate. For purposes of subparts D and F of
  this part, renewable oxygenate is defined as provided in this paragraph (a).
    (1) In the case of oxygenate added to reformulated gasoline or RBOB that is
  not designated as VOC-controlled or that is not subject to the additional
  requirements associated with an extended non-commingling season pursuant to
  Sec. 80.83(i), renewable oxygenate shall be:
    (i) An oxygenate that is derived from non-fossil fuel feedstocks; or
    (ii) An ether that is produced using an oxygenate that is derived from non-
  fossil fuel feedstocks.
    (2) In the case of oxygenate added to reformulated gasoline or RBOB that is
  designated as VOC-controlled or that is subject to the additional
  requirements associated with an extended non-commingling season pursuant to
  Sec. 80.83(i), renewable oxygenate shall be an ether that meets the
  requirements of paragraph (a)(1)(ii) or (a)(3) of this section.
    (3) An oxygenate other than those ethers specified in paragraphs (a)(1) or
  (a)(2) of this section may be considered a renewable oxygenate if the
  Administrator approves a petition to that effect. The Administrator may
  approve such a petition if it is demonstrated to the satisfaction of the
  Administrator that the oxygenate does not cause volatility increases in
  gasoline that are non-linear in nature (i.e., a non-linear vapor pressure
  blending curve). The Administrator may approve a petition subject to any
  appropriate conditions or limitations.
    (4)(i) Oxygenate shall be renewable only if the refiner, importer, or
  oxygenate blender who uses the oxygenate is able to establish in the form of
  documentation that the oxygenate was produced from a non-fossil fuel
  feedstock.
    (ii)(A) Any person who produces renewable oxygenate, as defined in
  paragraph (a)(1) of this section, or who stores, transports, transfers, or
  sells such renewable oxygenate, and where such renewable oxygenate is
  intended to be used in the production of gasoline, shall maintain documents
  that state the renewable source of the oxygenate, and shall supply to any
  transferee of the oxygenate documents which state the oxygenate is from a
  renewable source.
    (B) Any person who imports oxygenate that is represented by the importer to
  be renewable oxygenate, as defined in paragraph (a) of this section, shall
  maintain documents, obtained from the person who produced the oxygenate, that
  include a certification signed by the owner or chief executive officer of the
  company that produced the oxygenate that states:
    (1) The nature of the feedstock for the oxygenate; and
    (2) A description of the manner in which the oxygenate meets the renewable
  definition under paragraph (a) of this section.
    (iii) No person may represent any oxygenate as renewable unless the
  oxygenate meets the renewable definition under paragraph (a) of this section.
    (5) For purposes of this section, an oxygenate shall be considered to be
  derived from non-fossil fuel feedstocks only if the oxygenate is:
    (i) Derived from a source other than petroleum, coal, natural gas, or peat;
  or
    (ii) Derived from a product:
    (A) That was produced using petroleum, coal, natural gas, or peat through a
  substantial transformation of the fossil fuel;
    (B) When the product was initially produced, it was not commonly used to
  generate energy (e.g. automobile tires); and
    (C) The product was sold or transferred for a use other than energy
  generation, and was later treated as a waste product.
    (b) Renewable oxygenate standard. (1) The reformulated gasoline and
  reformulated gasoline produced using RBOB that is produced by any refiner at
  each refinery, or is imported by any importer, shall contain a volume of
  renewable oxygenate such that the reformulated gasoline and reformulated
  gasoline produced using RBOB, on average, has an oxygen content from such
  renewable oxygenate that is equal to or greater than 0.30 wt% for the period
  of December 1, 1994 through December 31, 1995, and 0.60 wt% beginning on
  January 1, 1996.
    (2) The averaging period for the renewable oxygenate standard specified in
  paragraph (b)(1) of this section shall be:
    (i) Each calendar year; except that
    (ii)Any reformulated gasoline and RBOB that is produced or imported prior
  to January 1, 1995 shall be averaged with reformulated gasoline and RBOB
  produced or imported during 1995.
    (3) (i) The oxygenate used to meet the standard under paragraph (b)(1) of
  this section may also be used to meet any oxygen standard under Sec. 80.41;
  except that
    (ii) The renewable oxygenate added by a downstream oxygenate blender shall
  not be used by any refiner or importer to meet the oxygen standard under Sec.
  80.41, except through the transfer of oxygen credits.
    (c) Downstream oxygenate blending using renewable oxygenate. (1) In the
  case of any refiner that produces RBOB, or any importer that imports RBOB,
  the oxygenate that is blended with the RBOB may be included with the
  refiner's or importer's compliance calculations under paragraph (d) of this
  section only if:
    (i) The oxygenate meets the applicable renewable oxygenate definition under
  paragraph (a) of this section; and
    (ii) The refiner or importer meets the downstream oxygenate blending
  oversight requirements specified in Secs. 80.69(a)(6) and (7); or
    (iii) (A) In the case of RBOB designated for "any renewable oxygenate" the
  refiner or importer assumes that ethanol will be blended with the RBOB;
    (B) In the case of RBOB designated for "renewable ether only" or "non-VOC
  controlled renewable ether only ", the refiner or importer assumes that ETBE
  will be blended with the RBOB; and
    (C) In the case of "any renewable oxygenate," "non-VOC controlled renewable
  ether only" and "renewable ether only RBOB," the refiner or importer assumes
  that the volume of oxygenate added will be such that the resulting
  reformulated gasoline will have an oxygen content of 2.0 wt%.
    (2) (i) No person may combine any oxygenate with RBOB designated as "any
  renewable oxygenate" unless the oxygenate meets the criteria specified in
  paragraph (a) of this section.
    (ii) No person may combine any oxygenate with RBOB designated as "renewable
  ether only" or "non-VOC controlled renewable ether only" unless the oxygenate
  meets the criteria specified in paragraph (a) of this section.
    (d) Compliance calculation. (1) Any refiner for each of its refineries, and
  any importer shall, for each averaging period, determine compliance with the
  renewable oxygenate standard by calculating:
    (i) Prior to January 1, 1996, renewable oxygen compliance total using the
  following formula:

 
                                       n
                              CTro = (SUM Vi) * 0.30
                                      i=1

    (ii) Beginning on January 1, 1996, the renewable oxygen compliance total
  using the following formula:

 
                                       n
                              CTro = (SUM Vi) * 0.60
                                      i=1

  where
  CTro=the compliance total for renewable oxygen
  Vi=the volume of reformulated gasoline or RBOB batch i
  n=the number of batches of reformulated gasoline and RBOB produced or
      imported during the averaging period

    (iii) The renewable oxygen actual total using the following formula:

 
                                      n
                              ATro = SUM (Vi * ROi)
                                     i=1

  where
  ATro=the actual total for renewable oxygen
  Vi=the volume of gasoline or RBOB batch i
  ROi=the oxygen content, in wt%, in the form of renewable oxygenate of
      gasoline or RBOB batch i
  n=the number of batches of gasoline or RBOB produced or imported during the
      averaging period

    (iv) Compare the renewable oxygen actual total with the renewable oxygen
  compliance total.
    (2) (i) The actual total must be equal to or greater than the compliance
  totals to achieve compliance, subject to the credit transfer provisions of
  paragraph (e) of this section.
    (ii) If the renewable oxygen actual total is less than the renewable oxygen
  compliance total, renewable oxygen credits must be obtained from another
  refinery or importer in order to achieve compliance.
    (iii) The total number of renewable oxygen credits required to achieve
  compliance is calculated by subtracting the renewable oxygen actual total
  from the renewable oxygen compliance total.
    (iv) If the renewable oxygen actual total is greater than the renewable
  oxygen compliance total, renewable oxygen credits are generated.
    (v) The total number of renewable oxygen credits which may be traded to a
  refiner for a refinery, or to another importer, is calculated by subtracting
  the renewable oxygen compliance total from the renewable oxygen actual total.
     (e) Credit transfers. Compliance with the renewable oxygenate standard
  specified in paragraph (b)(1) of this section may be achieved through the
  transfer of renewable oxygen credits, provided that the credits meet the
  criteria specified in Secs. 80.67(h)(1) (i) through (iv) and Secs. 80.67(h)
  (2) and (3).
    (f) Record keeping. Any refiner or importer, or any oxygenate blender who
  blends oxygenate with any RBOB designated as "any renewable oxygenate," "non
  VOC controlled renewable ether only" or "renewable ether only" shall for a
  period of five years maintain the records specified in this paragraph (f) in
  a manner consistent with the requirements under Sec. 80.74, and deliver such
  records to the Administrator upon request. The records shall contain the
  following information:
    (1) (i) Documents demonstrating the renewable nature and source of the
  oxygenate used, consistent with the requirements of paragraph (a)(3) of this
  section;
    (ii) The volume, type, and purity of any renewable oxygenate used; and
    (iii) Product transfer documentation for all renewable oxygenate,
  reformulated gasoline, or RBOB for which the party is the transferor or
  transferee.
    (2) The requirements of this paragraph (f) shall apply in addition to the
  recordkeeping requirements specified in Sec. 80.74(e).
    (g) Reporting requirements. (1) Any refiner for each refinery, or any
  importer, shall for each batch of reformulated gasoline and RBOB include in
  the quarterly reports for reformulated gasoline required by Sec. 80.75(a) the
  total weight percent oxygen and the weight percent oxygen attributable to
  renewable oxygenate contained in the gasoline, or contained in the RBOB
  subsequent to oxygenate blending if allowed under paragraph (c) of this
  section.
    (2) Any refiner for each refinery, or any importer, shall submit to the
  Administrator, with the fourth quarterly report required by Sec. 80.75(a), a
  report for all reformulated gasoline and RBOB that was produced or imported
  during the previous calendar year averaging period, that includes the
  following information:
    (i) The total volume of reformulated gasoline and RBOB;
    (ii) The compliance total for renewable oxygen;
    (iii) The actual total for renewable oxygen;
    (iv) The number of renewable oxygen credits generated as a result of actual
  total renewable oxygen being greater than compliance total renewable oxygen;
    (v) The number of renewable oxygen credits required as a result of actual
  total renewable oxygen being less than compliance total renewable oxygen;
    (vi) The number of renewable oxygen credits transferred to another refinery
  or importer;
    (vii) The number of renewable oxygen credits obtained from another refinery
  or importer; and
    (viii) For any renewable oxygen credits that are transferred from or to
  another refinery or importer, for any such transfer:
    (A) The names, EPA-assigned registration numbers and facility
  identification numbers of the transferor and transferee of the credits;
    (B) The number of renewable oxygen credits that were transferred; and
    (C) The date of the transaction.
    (h) Renewable oxygenate requirements for reformulated gasoline used in the
  State of California. (1) Any refiner or importer of California gasoline, as
  defined in Sec. 80.81, shall meet the renewable oxygenate standard specified
  in paragraph (a) of this section for all reformulated gasoline or RBOB used
  in any reformulated gasoline covered area as specified in Sec. 80.70.
    (2) Any California gasoline shall be presumed to be used in a reformulated
  gasoline covered area:
    (i) (A) If the gasoline is produced at a refinery that is located within a
  reformulated gasoline covered area; or
    (B) If the gasoline is transported to a facility that is located within a
  reformulated gasoline covered area, or to a facility from which gasoline is
  transported by truck into a reformulated gasoline covered area; unless
    (ii) The refiner or importer is able to establish with documentation that
  the gasoline was used outside any reformulated gasoline covered area.
    (3) Any California gasoline shall be considered to be designated as VOC-
  controlled (for purposes of paragraph (a)(1) of this section) if the Reid
  vapor pressure of the gasoline, or RBOB subsequent to oxygenate blending, is
  intended to meet a standard of:
    (i) 7.8 psi or less in the case of gasoline intended for use before March
  1, 1996; or
    (ii) 7.0 psi or less in the case of gasoline intended for use on or after
  March 1, 1996.
    (i) Special provisions for shoulder season. (1) The Governor of any state
  may petition for an extension of the non-commingling season for any or all
  reformulated gasoline covered areas within the state pursuant to Sec. 80.70.
    (i) Such petition must satisfy the following criteria:
    (A) Evidence showing an increase in the market share and/or use of
  oxygenates which produce commingling-related RVP increases in the area(s)
  that are covered by the petition;
    (B) Evidence demonstrating a pattern of exceedances for the period for
  which the extension is sought, including ozone monitoring data for the
  preceding three(3) years of the reformulated gasoline program;
    (C) An analysis showing that the pattern of ozone exceedances is likely to
  continue even with implementation of other ozone air quality control measures
  and/or programs currently planned by the State; and
    (D) Evidence that the responsible State agency or authority has given the
  public an opportunity for a public hearing and the submission of written
  comments with respect to the petition.
    (ii) Effective data and publication of decision.
    (A) If the Administrator determines that the petition meets the
  requirements of paragraph (i)(1)(i) of this section, to the satisfaction of
  the Administrator, then EPA shall publish a notice in the Federal Register
  announcing its intention to establish the non-commingling season as requested
  by the Governor, and specifying a tentative effective date.
    (1) The Administrator shall provide the public with an opportunity for a
  hearing and the submission of written comments.
    (2) The tentative effective date will correspond with the first day of the
  next complete non-commingling season beginning not less than one year after
  receipt of the petition.
    (B) If the Administrator receives adverse comments or information
  demonstrating to the satisfaction of the Administrator that the criteria of
  paragraph (i)(1)(i) of this section have not been met, that the tentative
  effective date is not reasonable, or that other good reasons exist to deny
  the petition, then the Administrator may reject the Governor's request for an
  extended non-commingling season, in whole or in part, or may delay the
  effective date by up to two (2) additional years. Absent receipt of such
  adverse comments or information, EPA shall publish a notice in the Federal
  Register announcing its approval of the petition and specifying an effective
  date for the extended non-commingling season.
    (2) In the case of any refiner that produces RBOB, or any importer that
  imports RBOB, the oxygenate that is blended with the RBOB may be included
  with the refiner's or importer's compliance calculations under paragraph (d)
  of this section only if:
    (i) The oxygenate meets the applicable renewable oxygenate definition under
  paragraph (a) of this section; and
    (ii) In the case of RBOB designated for "non VOC controlled ether only" the
  refiner or importer assumes that ETBE or other oxygenate that does not
  exhibit volatility-related commingling effects when mixed with other
  gasolines and approved by the EPA Administrator under subparagraph (a)(3) of
  this section will be blended with the RBOB and so labels the transfer
  documentation.
    6. Section 80.128 is amended by revising paragraphs (a) and (e)(2);
  removing "and" at the end of paragraph (e)(4); removing the period at the end
  of paragraph (e)(5) and adding "; and" in its place; and adding paragraph
  (e)(6) to read as follows:

  Sec. 80.128  Agreed upon procedures for refiners and importers.

  * * * * *

    (a) Read the refiner's or importer's reports filed with EPA for the
  previous year as required by Secs. 80.75, 80.83(g), and 80.105.

  * * * * *

    (e) * * *
    (2) Determine that the requisite contract was in place with the downstream
  blender designating the required blending procedures, or that the refiner or
  importer accounted for the RBOB using the assumptions in Sec. 80.69(a)(8) in
  the case of RBOB designated as "any oxygenate," or "ether only," or using the
  assumptions in Secs. 80.83(c)(1)(ii) (A) and (B) in the case of RBOB
  designated as "any renewable oxygenate," "non VOC controlled renewable ether
  only," or "renewable ether only";

  * * * * *

    (6) In the case of RBOB designated as "any renewable oxygenate," "non VOC
  controlled renewable ether" or "renewable ether only", review the
  documentation from the producer of the oxygenate to determine if the
  oxygenate meets the requirements of Sec. 80.83(a).

  * * * * *

    7. Section 80.129 is amended by revising paragraphs (a) and (d)(3) (iii)
  and (iv), and by adding paragraph (d)(3)(v) to read as follows:

  Sec. 80.129  Agreed upon procedures for downstream oxygenate blenders.

  * * * * *

    (a) Read the oxygenate blender's reports filed with the EPA for the
  previous year as required by Secs. 80.75 and 80.83(g).

  * * * * *

    (d) * * * *
    (3) * * * *
    (iii) In the case of RBOB designated as "any renewable oxygenate," "non VOC
  controlled renewable ether only," or "renewable ether only," review the
  documentation from the producer of the oxygenate to determine if the
  oxygenate meets the requirements of Sec. 80.83(a);
    (iv) Recalculate the actual oxygen content based on the volumes blended and
  agree to the report to EPA on oxygen; and
    (v) Review the time and place designations in the product transfer
  documents prepared for the batch by the blender, for consistency with the
  time and place designations in the product transfer documents for the RBOB
  (e.g., VOC-controlled or non-VOC-controlled, VOC region for VOC-controlled,
  OPRG versus non-OPRG, and simple or complex model).

  * * * * *

  [FR Doc. 94-17649 Filed 8-1-94; 8:45 am]

  BILLING CODE 6560-50-P